Even though the equity strategy team at UBS has downgraded U.S. equities to Neutral from Outperform, they remain very positive on large cap biotechnology names. Acknowledging in their recent report that the U.S. downgrade was as much a valuation call as anything, they also feel that there is a degree of event risk to U.S. stocks that may be less likely to affect the biotechnology sector.

Despite relative outperformance of the large cap biotech group over the past two years, the UBS team sees the new product cycles and attendant mid- to long-term growth as a strong basis for valuation. In fact, they note that valuation is currently at the low end of historical ranges. Here are the top large cap biotechnology stocks to buy from UBS.

Alexion Pharmaceuticals Inc. (NASDAQ: ALXN) has been on fire through the summer and continues to be a target of takeover rumors. While the company only has one drug on the market, Soliris, which treats two rare diseases, big pharmaceutical companies may indeed have Alexion in their sights. The UBS price target for the stock is $126. The Thomson/First Call estimate is $122.

Amgen Inc. (NASDAQ: AMGN) is a company doing the acquiring. The company recently completed a $10.4 billion purchase of Onyx Pharmaceuticals Inc. (NASDAQ: ONYX) to add its cancer drug Kyprolis to its already sprawling portfolio. UBS has a $124 price target on the stock. The consensus target is at $123. Investors are paid a 1.7% dividend.

Cubist Pharmaceuticals Inc. (NASDAQ: CBST) is another top stock to buy making acquisitions. It recently received antitrust clearance for its purchase of Trius Pharmaceutical. The acquisition strengthens its already strong antibiotic franchise. UBS has a $70 price target, and the consensus is placed at $65.

Gilead Sciences Inc. (NASDAQ: GILD) is one of the high conviction names to buy at UBS. Its leading position in both the hepatitis C and HIV franchises makes the stock a top portfolio holding for clients. The UBS price target is pegged at $72, while the consensus target is $72.50.

InterMune Inc. (NASDAQ: ITMN) continues to soar on the strength of global sales of its top drug Esbriet. The company is still seeking FDA approval to sell Esbriet in the United States. Before approval can take place, the company is awaiting top-line results from the phase 3 ASCEND study. InterMune expects to release these results during the second quarter of 2014. This could be a huge catalyst. UBS has a $15 price target, which should rise soon, and the consensus is at $16.

Medivation Inc. (NASDAQ: MDVN) is a top stock to buy and makes the UBS Key Call list as well. The company expects to present top line phase 3 data from the crucial PREVAIL trial of Xtandi in castration-resistant metastatic prostate cancer. UBS is highly confident the trials will prove successful. Its price target for the stock is $74, and the consensus target is $69.50.

Puma Biotechnology Inc. (NYSE: PBYI) is a stock that UBS views as having multiple catalysts. The analysts are positive on the potential for their cancer drug neratinib to demonstrate positive data in neoadjuvant breast, as well as specific genetic mutations for other cancers. Success in either area may lead to strong upside for the stock. The UBS price target is $61, while consensus is at $62.50.

While very upbeat on the sector as a whole, UBS was very cautious on sell-rated Ironwood Pharmaceuticals, Inc (NASDAQ: IRWD) and ImmunoGen Inc. (NASDAQ: IMGN). Neutral-rated Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) and Seattle Genetics Inc. (NASDAQ: SGEN) were also viewed with a skeptical eye.

Large cap biotechnology has had a strong two years, and investors in the sector have been rewarded well. Given the strong move up in the stocks and the overall market’s strength, investors may want to scale into positions or wait for a market pullback to buy. September is traditionally a shaky month for the stock market, and this year may prove to be no exception.

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