UBS strategist Keith Parker raised Tech stocks to Overweight due to the increasing relative growth/momentum of Tech stocks, stronger pricing power and potential payouts.

The analyst says valuation and rising rates still offer a risk to tech stocks, however growth/cycle “should matter more.”

“Surging labor issues point to big upside in IT/software spend. Software & Svcs are favored over Semis, over Tech Hdwr. REITs upgrade is driven by solid growth amid inflation, better pricing vs lower cost exposures, and a cycle stage setup that should be relatively supportive,” Parket said in a client note.

UBS’s other areas of excess include REITs and Healthcare as well as Financials and Energy. However, it is underweight in Materials, Industrials and Utilities.

On Healthcare, P/Es are “still well below prior late cycle levels” says Parker while he expects the EPS momentum to further improve.

He also reduced Communication Services from Overweight to Neutral and stated that Interactive Media is his preference over Telecom.

By Senad Karaahmetovic