The U.S. and Israel are showing signs of escalating their war against Iran – a move that could batter a variety of assets, even traditional safe havens. To protect their portfolios, investors can snap up stocks from an oft-shorted sector: pharmaceuticals, UBS analysts say. Since the first strikes last Saturday, the Iran War has roiled global markets. Oil prices surged above $100 per barrel this week, while U.S. stocks plunged as the conflict limited trade and travel. Now, as the conflict has shown signs of widening to other countries, including Lebanon and Bahrain, traditional safe-haven assets are showing signs of faltering. Spot gold has fallen more than 2% over the past five days, putting the metal on track for its first weekly decline in more than a month. Consumer staples also weakened as rising oil prices drove gasoline higher, hitting low-end consumers and raising input costs for companies. But some assets offer protection against geopolitical risks, according to UBS. Enter: pharmaceutical stocks. More than three dozen pharmaceutical stocks, including Eli Lilly and Merck , are likely to ride out the Iran War, UBS analysts said in a Friday note to clients. “Many investors are looking for diversifiers amid Middle East tensions,” UBS strategist Andrew Garthwaite wrote in the 24-page report. “Pharma is the most defensive sector and has a very close (inverse) correlation” purchasing managers indexes, he said. Eli Lilly is rated buy at UBS. Shares are up 34% over the past six months. Merck is also rated buy, and is 35% higher over the past six months. The pharmaceutical sector is discounting a purchasing managers’ index of 52, suggesting it is still poised for growth, according to the London-based Garthwaite. Garthwaite also noted that valuations are still relatively cheap across the pharmaceuticals sector. The group of stocks is also poised to benefit due to its low leverage, with the analyst noting that it is “one of the best-performing sectors when credit spreads rise.” Drugmakers are also a favorite among short-sellers, leaving them susceptible to a squeeze. UBS said pharmaceuticals are seventh-most shorted sector out of 29 globally. Finally, pharmaceutical stocks are poised to be a winner in the generative artificial intelligence era, largely because AI tools are likely to boost research and development productivity.