Barclays initiates coverage of the U.S. biopharmaceutical sector, recommending four preferred stocks.

Investing.com - Barclays has begun coverage of major U.S. biopharmaceutical companies, believing that amid macroeconomic uncertainty, this sector may regain investor attention, and has listed Eli Lilly (NYSE:LLY), Merck & Co. (NYSE:MRK), Bristol-Myers Squibb (NYSE:BMY), and AbbVie (NYSE:ABBV) as its top picks.

The bank assigns a neutral industry rating to the sector, stating that pharmaceuticals remain a “relatively safe haven during uncertain times” and could become an “area of return for investors by 2026.”

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Barclays analysts highlighted several catalysts supporting the sector. They noted that after the most favored nation (MFN) agreements and related negotiations, policy clarity has improved, which “significantly reduces the tail risk in U.S. drug pricing.”

Analysts also pointed out structural tailwinds, including aging populations, rising chronic disease prevalence, and sustained growth in healthcare spending.

Additionally, the defensive nature of the pharmaceutical industry is being rediscovered. Analysts noted that the S&P Pharma Index outperformed the broader market during major historical pullbacks.

They also see artificial intelligence as a “positive rather than a threat,” positioning the industry as a “winner in AI.”

“Unlike traditional media, retail, or financial services, the pharmaceutical industry appears to be leveraging AI to shorten R&D timelines and reduce clinical trial costs (efficiency gains of 30%),” said the analyst team led by Emily Field.

“Therefore, we see the pharmaceutical industry as an ‘AI winner’ because it accelerates core competitiveness rather than disrupting its (highly regulated) business model,” they added.

Nevertheless, Barclays remains cautious on the sector, citing that product pipelines through 2026 may be “more incremental than transformative,” and warns that the U.S. policy environment remains unstable.

Among the group, Eli Lilly is the firm’s top pick. Analysts believe obesity treatment represents a “lasting structural shift,” and despite high valuations, Lilly could maintain its market leadership.

Merck & Co. is also rated as an overweight, with expectations of earnings exceeding forecasts, and upcoming product launches and clinical results could drive valuation multiples higher.

For Bristol-Myers Squibb, analysts acknowledge the company faces significant patent cliffs but note that “positive signs in the product pipeline are beginning to emerge,” supporting an overweight rating.

“We believe that as more product pipeline progress is achieved throughout fiscal 2026, earnings estimates for Bristol-Myers Squibb will be raised, and valuation multiples will expand,” they said.

AbbVie is listed as a top pick, with Barclays believing the market may be underestimating its operational leverage and product line optionality.

Additionally, the bank assigns equal weight ratings to Gilead Sciences (NASDAQ:GILD), Biogen (NASDAQ:BIIB), and Amgen (NASDAQ:AMGN), while giving a hold rating to Pfizer (NYSE:PFE), citing recent significant patent expirations and difficulties in deleveraging its balance sheet.

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