Merrill Lynch recently released its September RIC Report, noting key strategy views and showing many sector views. One such view from the firm was that health care stocks are currently close to all-time low valuations, and the firm believes that fund managers have reduced their holdings while the sector continues to surprise to the upside on earnings and sales.

According to Merrill Lynch, the health care sector should act as a good hedge against volatility. It is also considered to be the primary beneficiary of aging demographics, while paying yields at reasonable prices. Even biotech was shown to offer growth at a reasonable price.

Before investors just jump in blindly, they should note that the RIC Report does highlight at least some health care risks. One risk is that leverage has significantly increased from mergers and acquisitions, but that remains low relative to other sectors. Another concern was that wage pressures could hurt labor-intensive health care providers and services stocks. Yet another risk to consider is that health care has the highest government spending exposure of any sector and the future of the ACA (Obamacare) is still unknown. A last risk cited was that health care stocks would lag in a cyclical economic upturn.

Merrill Lynch’s Savita Subramanian noted that health care stocks are currently trading at a 6% discount to the market. While this does not sound much of a discount, she pointed out that the health care sector traditionally has traded at a 15% premium to the market and that it is now an out-of-favor sector. Fund managers also appear to have the lowest level of ownership in health care since 2008, and they are grossly underweight the sector, if compared to the peak ownership of 2014.

One serious help to health care is coming from demographics, with the U.S. Census projecting that the percentage of the U.S. population older than 65 will double over the next 20 years. Health care also was shown to account for about 13% of all spending in that age group, almost double that percentage for those under age 65. The top subsector within health care is large cap biotechs, at a discount to the market and valued the lowest versus the market in the past three decades.

24/7 Wall St. went through some of the sector calls within health care in the September RIC Report and elsewhere in the Merrill Lynch coverage universe in health care. While not every single stock mentioned comes with a Buy rating, the reality is that almost all the companies mentioned either came with solid dividends or they still had implied upside to the firm’s official price objective.

Of the large-cap biotech picks, Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN) was trading at $506.79 when Merrill Lynch added it to the US 1 List (its focus list) and the shares were at $471.49 ahead of its RIC report. This stock was last seen down at $444.48, with a $47 billion market cap. Merrill Lynch’s price objective is all the way up at $588, compared with about $499 as the consensus analyst target from Thomson Reuters.

With a focus singling out big-cap biotech names, we dug through the largest biotechs other than Regeneron. These were not part of Merrill Lynch’s RIC Report but they do have Buy ratings and upside price objectives.

Amgen Inc. (NASDAQ: AMGN) is covered with a Buy rating, and the firm has a $192 price objective. Unfortunately, its shares are close to $191 at this time, and the market cap is about $139 billion. Amgen pays a 2.4% yield to investors.

Biogen Inc. (NASDAQ: BIIB) is covered with a Buy rating, and Merrill Lynch has a $358 price objective. Trading at $329.69, Biogen has a market cap near $69 billion.

Celgene Corp. (NASDAQ: CELG) is rated as Buy at Merrill Lynch, and the $142.07 current price is still under the $154 price objective. Celgene’s consensus target price is $150.78, and its market cap is just above $111 billion.