Investing.com - European pharmaceutical stocks offer solid growth, valuations near 10-year lows, and a possible safe haven from challenges related to U.S. President Donald Trump’s tariff plans, according to analysts at Morgan Stanley (NYSE:MS).
In a note to clients, the analysts argued that drugmakers in the region also have "strong momentum," with the sector seen delivering income per share expansion of 12% over the 2024 to 2026 period versus 8% in the broader market.
A firmer U.S. dollar and a possibly looser regulatory environment for corporate dealmaking should further support the sector against a "challenging policy backdrop," the analysts said.
In particular, Trump’s move to impose new levies on friends and adversaries alike in the opening weeks of his second term in the White House present a particular risk to the wider market, they added.
Advisers close to Trump were finalizing plans to roll out sweeping reciprocal tariffs on Wednesday, according to Reuters. The levies would be the latest salvo in Trump’s attempt to impose a more protectionist, transactional relationship between the U.S. and its international trading partners -- a policy shift that has fueled worries over an impending global trade war.
Earlier this week, Trump unveiled fresh 25% tariffs on all steel and aluminum imports, sparking condemnation from the European Union, Canada and Mexico.
Economists have warned that the changes could stall a gradual cooling in U.S. inflation, which may dent the outlook for potential Federal Reserve interest rate cuts later this year.
Against this murky economic backdrop, European pharmaceutical names can "provide insulation" for investors, the Morgan Stanley analysts said.
"Whilst [the pharmaceuticals industry] has been flagged as a sector where tariffs could be imposed, we believe this would deteriorate U.S. healthcare affordability and therefore implementation (at least without offsets) remains uncertain in our view," they wrote.
In individual stocks, the analysts said they preferred Britain’s AstraZeneca (LON:AZN) (NASDAQ:AZN)’s "underappreciated growth and [drug] pipeline" over Novo Nordisk (CSE:NOVOb) (NYSE:NVO), citing "challenges" to the Danish firm’s leadership in the burgeoning market for weight-loss drugs.
Lab equipment provider Sartorius (ETR:SATG_p) was also preferred over Swiss biotech Lonza (SIX:LONN) due to the former’s "potential for premium multiples to return."
Elsewhere, Spain’s Grifols (BME:GRLS) was their mid-cap pick due to "improving visibility and execution" that is likely to "trigger" a re-rating of the stock. Softer growth and a perceived lack of catalysts for the stock led the analysts to adopt an "underweight" rating of French biopharmaceutical group Ipsen (EPA:IPN).
AstraZeneca and Sartorius were named as the Morgan Stanley analysts’ "top picks" in the pharmaceutical sector.