Back to top

Play Medtronic's Q2 Earnings Beat With These 2 Funds

Read MoreHide Full Article

Medtronic plc (MDT - Free Report) posted favorable earnings results in the fiscal second quarter. The manufacturer and seller of device-based medical therapies involved in the healthcare sector posted earnings beat for the quarter. Adjustments in the quarter primarily included the impact of restructuring charges, intangible asset amortization, and unrealized and realized losses on minority investments.

Medtronic’s encouraging earnings results had a positive impact on the healthcare sector and boosted investor sentiment. Following the promising development, investing in health care mutual funds with a significant holding in the Irish medical company will be prudent.

Q2 Earnings in Focus

Medtronic reported second-quarter fiscal 2019 adjusted earnings per share (EPS) of $1.22, beating the Zacks Consensus Estimate by 7%. Adjusted earnings rose 14% year over year. Without the adjustments, net earnings were 82 cents per share compared with $1.48 in the year-ago quarter.

Worldwide revenues in the reported quarter grossed $7.48 billion, up 7.5% on an organic basis (up 6.1% on a reported basis). The top line surpassed the Zacks Consensus Estimate by 1.8%. Organic revenues in the quarter include adjustments for a $95-million negative impact from foreign currency.

For the full year, organic revenue growth expectations have been raised to the range of 5.0-5.5% from the previous range of 4.5-5.0%. Currency fluctuation is now expected to negatively impact the top line by $420-$520 million (unchanged from the previous guidance).

Fiscal year 2019 adjusted EPS view is reiterated at the range of $5.10 to $5.15. This assumes a neutral effect from foreign exchange (unchanged). The Zacks Consensus Estimate of $5.12 is near the high end of the guided range. (Read More: Medtronic Tops Q2 Earnings on Strong Segmental Growth)

Additionally, the health care sector has jumped 8.3% year to date (YTD), becoming the best-performing sector on the S&P 500. In fact, the health care sector’s performance is in contrast to the S&P 500’s decline of 0.9%. Additionally, mutual funds related to this sector have registered strong returns. According to Morningstar, healthcare mutual funds have returned 5.9% YTD.

Buy 2 Healthcare Mutual Funds

Here we have selected two healthcare mutual funds that have significant exposure to Medtronic. Moreover, these funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

These funds also have encouraging three-year annualized returns and minimum initial investment within $5000. Also, each of these funds has a low expense ratio.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.

Vanguard Health Care Investor (VGHCX - Free Report) invests a huge part of its assets in stocks of health care companies that are mainly involved in development, production and distribution of health care services. The fund may invest around half of its assets in foreign companies.

VGHCX carries an expense ratio of 0.38% compared with the category average of 1.42%. Moreover, VGHCX requires a minimal initial investment of $3,000. The fund has three-year annualized returns of 8.6%.

This Sector-Health product, as of the last filing, allocates the fund mainly in the Health sector.  As of the last filing, VGHCXheld 2.67% of its assets invested in Medtronic. The average EPS growth of the fund is 12.24%.

VGHCX’s performance, as of the last filing, when compared to funds in its category was in the top 62% over the past three years and in the 44% over the past five years.

The fund carries a Zacks Mutual Fund Rank #2. Jean M. Hynes is the fund manager of VGHCX since 2008. Its dividend yield is 0.92%.

Live Oak Health Sciences Fund (LOGSX - Free Report) invests a large portion of its assets in equity securities of health companies that are involved in the research, development, production, or distribution of products or services related to healthcare, medicine, or the life sciences. LOGSX generally invests in common stocks of domestic companies. The fund may also invest in common stocks of foreign companies and ADRs. 

LOGSX carries an expense ratio of 1.02% compared with the category average of 1.42%. Moreover, LOGSX requires a minimal initial investment of $2,000. The fund has three-year annualized returns of 6.4%.

This Sector-Health product, as of the last filing, allocates the fund mainly in the Health sector.  As of the last filing, LOGSX held 1.59% of its assets invested in Medtronic. The average EPS growth of the fund is 20.92%.

LOGSX’s performance, as of the last filing, when compared to funds in its category was in the top 37% over the past three years and in the 57% over the past five years.

The fund has a Zacks Mutual Fund Rank #2. Mark W. Oelschlager is the fund manager of LOGSX since 2001. Its dividend yield is 0.41%.

Want key mutual fund info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>




In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Medtronic PLC (MDT) - free report >>

Live Oak Health Sciences (LOGSX) - free report >>

Vanguard Health Care Investor (VGHCX) - free report >>

More from Zacks Mutual Fund Commentary

You May Like

Published in