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Healthcare ETFs to Buy Ahead of Q3 Earnings

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Healthcare was the best performing sector in the third quarter. The dual tailwinds of encouraging industry fundamentals and the sector’s defensive tilt led to the rally in the sector. The wave of mergers and acquisitions also added to its strength (read: Top Performing ETFs of the Third Quarter).

Popular ETFs like Health Care Select Sector SPDR Fund (XLV - Free Report) has gained 4.2%, while Vanguard Health Care ETF (VHT - Free Report) , iShares U.S. Healthcare ETF (IYH - Free Report) and Fidelity MSCI Health Care Index ETF (FHLC - Free Report) are up at least 2.5% each over the past three months. The strength is likely to continue into the Q3 earnings season as some big names like Pfizer (PFE - Free Report) , Merck (MRK - Free Report) , Amgen (AMGN - Free Report) , AbbVie (ABBV - Free Report) , Gilead Sciences (GILD - Free Report) and Bristol-Myers Squibb (BMY) are lined up to report this week and in the next. All these stocks collectively account for 25.1% share in XLV, 23.2% in IYH, 22% in FHLC and 21.4% in VHT.

Let’s dig deeper into the earnings picture of these companies that will drive the performance of the abovementioned funds in the coming days:

According to our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), when combined with a positive Earnings ESP increases our chances of predicting an earnings beat, while Zacks Rank #4 or 5 (Sell rated) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Inside Our Surprise Prediction for These Stocks

Pfizer has a Zacks Rank #3 and an Earnings ESP of -0.79%, indicating a lower chance of beating estimates this quarter. The stock has witnessed positive earnings estimate revision of a penny for the to-be-reported quarter over the past seven days. It delivered an average positive earnings surprise of 6.46% for the past four quarters. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a pretty good sign for the stock. Pfizer has a VGM Score of D. The company is scheduled to report earnings on Oct 30, before the opening bell.

Merck is expected to report results on Oct 25 before market opens. It has a Zacks Rank #3 and an Earnings ESP of -0.30%. The stock delivered a positive earnings surprise in the last four quarters, with an average beat of 5.25% and witnessed positive earnings estimate revision of a penny over the past seven days for the to-be-reported quarter. Merck has a VGM Score of B (read: Best ETFs & Stocks From the Top Sector of Q3).

Amgen carries a Zacks Rank #2 and has an Earnings ESP of +0.56%, indicating a higher chance of beating estimates this time around. The earnings surprise track over the past four quarters is strong, with an average positive surprise of 4.29%. Amgen has witnessed positive earnings estimate revision of a penny over the past 30 days for the quarter to be reported. The stock has a VGM Score of C. Amgen will report earnings on Oct 30 after market close.

AbbVie has a Zacks Rank #3 and an Earnings ESP of -0.20%. The company delivered a positive earnings surprise in the last four quarters, with an average beat of 2.28% and has seen no earnings estimate revision over the past seven days for the to-be-reported quarter. The stock has a solid VGM Score of A. The company is scheduled to report on Nov 2 before the opening bell.   

Gilead is expected to release earnings on Oct 25 after market close. It has a Zacks Rank #1 and an Earnings ESP of -1.98%, indicating lower chance of beating estimates this quarter. Gilead delivered positive earnings surprise of 6.43% over the last four quarters and saw no earnings estimate revision over the past seven days for the to-be-reported quarter. It has a VGM Score of D.

Bristol-Myers will likely report earnings on Oct 25 before the opening bell. It has a Zacks Rank #2 and an Earnings ESP of -0.48%. The stock delivered an average positive earnings surprise of 6.39% over the past four quarter, and saw positive earnings estimate revision of a penny over the past seven days for the to-be-reported quarter. It flaunts a top VGM Score of A (read: Top-Ranked Healthcare ETFs for Long-Term Investors).

Summing Up

With most of the healthcare companies witnessing positive earnings estimate revision lately, the sector is expected to witness earnings growth of 8.4% in the third quarter, suggesting continued outperformance for healthcare ETFs. In particular, all the four ETFs have a Zacks ETF Rank #2 (see: all the Healthcare ETFs here).

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