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Pro Analysis

Rare biotech buying opportunity, says Morgan Stanley

Scientist lab biotech
AlexRaths | Getty Images

The hunt for yield has raised valuations for big pharma stocks above their biotech peers, a rare feat that presents a buying opportunity as growth prospects for biotech companies improve, according to Morgan Stanley.

"Recent revision trends and a focus on yield have propped up pharma, but faster sales growth, higher and expanding margins, and the potential for M&A should support biotech from these levels," wrote Adam Parker, chief U.S. equity strategist at Morgan Stanley.

For the first time in history, biotech and pharma companies trade at similar price-to-forward earnings, Parker notes, explaining that the discount in valuations is "too substantial" to dismiss.