Beaten-Down Pharma ETFs To Buy Post Q3 Results

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 (NYSE:JNJ) was the first major drug company to report earnings on Oct 16, followed by Bristol-Myers Squibb Company (NYSE:BMY) and Merck (NYSE:MRK) on Oct 25. Other major U.S. drug company — Pfizer (NYSE:PFE) — 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

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 (HN:XPH)

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 (AX:PPH)

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 (WA:PJP)

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

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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