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Beaten-Down Pharma ETFs to Buy Post Q3 Results

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Total earnings for 76.7% of the total healthcare market capitalization are up 11% on revenue growth of 7.2%. The growth rates seem unimpressive when compared with some of the other sectors. Earnings and revenue beat ratios of 82.9% and 57.1%, respectively, are also not great either.

Among the most notable players, Johnson & Johnson (JNJ - Free Report) was the first major drug company to report earnings on Oct 16, followed by Bristol-Myers Squibb Company (BMY - Free Report) and Merck (MRK - Free Report)   on Oct 25. Other major U.S. drug company — Pfizer (PFE - Free Report) — reported Oct 30. These industry bigwigs came up with solid results either beating on earnings or revenue estimates or both (read: Trump's Presidential 2 Years: Must-See ETF Areas).

Earnings in Focus

Johnson and Johnson


The world's biggest maker of healthcare products continued its long streak of earnings beat. Earnings per share came in at $2.05, couple of cents ahead of the Zacks Consensus Estimate and 7.9% higher than the year-ago quarter. Revenues grew 3.6% year over year to $20.35 billion and edged past the Zacks Consensus Estimate of $19.92 billion. However, Johnson & Johnson raised its revenue guidance to $81-$81.4 billion from $80.5-$81.3 billion for 2018 and earnings per guidance range to $8.13-$8.18 from $8.07-$8.17.

Pfizer

Earnings per share of 78 cents came in couple of cents above the Zacks Consensus Estimate and revenues of $13.3 billion were in line with the estimate. On an annual basis, earnings per share and revenues rose 16% and 1%, respectively. For 2018, the U.S. drug giant narrowed the revenue guidance range from $53-$55 billion to $53-$53.7 billion, and earnings per share guidance from $2.95-$3.05 to $2.98-$3.02.

Merck

Earnings per share came in at $1.19, surpassing the Zacks Consensus Estimate of $1.16 and improving 7.2% from the year-ago quarter. Revenues inched up 5% year over year to $10.79 billion but missed the estimate of $10.87 billion. Merck raised its earnings guidance from $4.22-$4.30 to $4.30-$4.36 but slightly narrowed its revenue expectations from $42.0-$42.8 billion to $42.1-$42.7 billion (see: all the Healthcare ETFs here).

Bristol-Myers

Bristol-Myers reported earnings per share of $1.09, 18 cents above the Zacks Consensus Estimate and higher than the year-ago earnings of 75 cents. Revenues grew 8% to $5.69 billion but fell short of the Zacks Consensus Estimate of $5.72 billion. The company raised 2018 earnings per share guidance from $3.55-$3.65 to $3.80-$3.90.

ETF Angle

Despite strong results, the broad market sell-off took the sheen from the pharma ETFs over the past month. Below we have highlighted them in detail. These funds have a Zacks ETF Rank #2 (Buy), suggesting solid entry point on beaten down prices.

iShares U.S. Pharmaceuticals ETF (IHE - Free Report)

This ETF provides exposure to 47 pharma stocks by tracking the Dow Jones U.S. Select Pharmaceuticals Index. The in-focus firms are the top five holdings in the basket, accounting for a combined 34.8% of total assets, suggesting heavy concentration. The product has $420.4 million in AUM and charges 43 bps in fees and expense. Volume is light as it exchanges about 16,000 shares a day. The fund is down 5.4% in a month.

SPDR S&P Pharmaceuticals ETF (XPH - Free Report)

This fund provides exposure to pharma companies by tracking the S&P Pharmaceuticals Select Industry Index. With AUM of $319.7 million, it trades in good volume of around 96,000 shares a day and charges 35 bps in fees a year. In total, the product holds 44 securities with the in-focus four firms making up for at least 4% share each. The product shed 3.5% in the same period (read: ETF Strategies for the Midterm Elections).

VanEck Vectors Pharmaceutical ETF (PPH - Free Report)

This ETF follows the MVIS US Listed Pharmaceutical 25 Index and holds 25 stocks in its basket. The in-focus four firms account for more than 4% share each. The product has amassed $281 million in its asset base and trades in moderate volume of about 39,000 shares a day. Expense ratio comes in at 0.35%. The fund has lost 3.6% in a month.

Invesco Dynamic Pharmaceuticals ETF (PJP - Free Report)

This is by far the most-popular choice in the pharma space that follows the Dynamic Pharmaceuticals Intellidex Index. The product has AUM of about $524.2 million and sees lower volume of around 35,000 shares a day. The fund charges 57 bps in fees and expenses. Holding 30 stocks, the fund invests nearly 5% share each in these four firms. The ETF has lost 5.6% in a month.

First Trust Nasdaq Pharmaceuticals ETF (FTXH - Free Report)

This fund tracks the Nasdaq US Smart Pharmaceuticals Index, holding 30 securities in its basket. The in-focus firms account for a combined 24% of assets. FTXH has a lower level of $4.5 million in AUM and 3,000 shares in average daily volume. It charges 60 bps in annual fees and shed 4.4% in the same time frame.

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