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Pharma & Healthcare ETFs at a One-Year High: Here's Why

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The broader medical sector is in sweet spot now on higher demand for coronavirus vaccine as the treatment as the Delta variant of the COVID-19 scare rises. Apart from this, upbeat earnings and decent valuation should give the sector a further drive.

Upbeat Earnings, Covid-19-Related Sales

Earnings expectations of the healthcare sector are upbeat as the sector is likely to log 23.2% growth in the second quarter of 2021 on revenue growth of 18.4%, per the Earnings Trends issued on Jul 28, 2021. Higher demand for drugs, testing and vaccines for COVID-19 is a plus for the sector. 

Pfizer (PFE - Free Report) sold $7.8 billion in Covid shots in the second quarter. The company’s second-quarter financial results also came ahead of Wall Street expectations on both earnings and revenue. Pfizer Inc. raised its full-year forecast for sales of its Covid-19 vaccine to about $33.5 billion, marking about 30% increase, helping boost the company’s overall estimates for its sales and profits in 2021. The company now expects full-year earnings in the range of $3.95 to $4.05 per share, up from its prior range of $3.55 to $3.65 per share.

Roche’s first-half net profit gained 2% to 8.22 billion Swiss francs ($8.96 billion) and sales rose by 8% at constant exchange rates to a better-than expected 30.71 billion francs. Diagnostics division sales grew 51% in the first half due to high demand for Covid-19 tests and strong momentum in routine testing, the drugmaker said. This helped to make up for a 3% decline in pharmaceuticals sales.

Johnson & Johnson (JNJ - Free Report) reported stronger-than-expected second-quarter earnings, beating estimates on both counts, driven by strong sales and earnings growth across all three segments. The company raised its overall revenue estimate for the year and forecast $2.5 billion in sales of its COVID-19 vaccine.

Most recently, Moderna (MRNA - Free Report) , known for its success in the COVID-19 vaccine, entered the big league with its addition to the S&P 500 Index (read: Moderna Soars on Inclusion to S&P 500: ETFs in Focus).

The FDA granted approval to Merck’s investigational 15-valent pneumococcal conjugate vaccine for active immunization for the prevention of invasive pneumococcal disease caused by 15 serotypes in adults 18 years of age and older. The vaccine will be marketed by the trade name of Vaxneuvance.

Compelling Valuation & Lucrative Dividend Prospects

The valuation of the sector is also compelling. The forward P/E of the large-cap pharma industry is 14.77X versus 21.00X of the S&P 500. The PEG of the industry is 2.22% versus 2.04% of the S&P 500. The dividend yield of the sector is 2.55% versus 1.35% of the S&P 500.

ETFs in Focus

Against the above-mentioned backdrop, below we highlight a few healthcare and pharma ETFs that have been hovering around a 52-week high level.

US Innovative Healthcare iShares Evolved ETF (IEIH - Free Report)

This ETF is active and does not track a benchmark. The fund’s top three holdings Are Johnson & Johnson, Moderna and Pfizer. The fund charges 18 bps in fees.

US Pharmaceuticals iShares ETF (IHE - Free Report)

The underlying Dow Jones U.S. Select Pharmaceuticals Index is free-float adjusted market capitalization-weighted index. It includes pharmaceutical companies such as manufacturers of prescription or over-the-counter drugs or vaccines. The fund’s top three holdings are Johnson & Johnson, Pfizer and Zoetis. It charges 42 bps in fees.  

Vaneck Pharmaceutical ETF (PPH - Free Report)

The underlying MVIS US Listed Pharmaceutical 25 Index tracks the overall performance of companies involved in pharmaceuticals, including pharmaceutical research and development as well a production, marketing and sales of pharmaceuticals. Merck, Eli Lily, Novo Nordisk A/S and Pfizer round out the top four spots in the fund. The fund charges 35 bps in fees.

Dynamic Pharmaceuticals Invesco ETF (PJP - Free Report)

The underlying Dynamic Pharmaceutical Intellidex Index is comprised of stocks of U.S. pharmaceutical companies. It is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. Eli Lily, Pfizer and Merck are the top three holdings of the fund. The fund charges 56 bps in fees.

Healthcare Alphadex First Trust ETF (FXH - Free Report)

The underlying StrataQuant Health Care Index employs the AlphaDEX stock selection methodology to select stocks from the Russell 1000 Index. Moderna, Bio-Rad Laboratories and Universal Health Services are the top three holdings of the fund.