Pharma Sector Tops In October: Best ETFs & Stocks

Almost every corner of the broader healthcare sector has been on a tear since October. Among the all industries, Pharmaceuticals gained the most in October itself, adding 8.7%. Pharma was followed by Biotechnology (up 6.9%), Health Care Services (up 3.8%) and Healthcare Equipment (up 1.1%).

Inside the Rally

Per the Earnings Trends issued on Nov 6, 2019, total earnings of 91.6% of the entire healthcare market capitalization that has reported so far are up 7.0% on revenue growth of 7.8%. The earnings growth rate seems to be the fifth highest among the 16 Zacks classified sectors. Revenue growth rate was the third-highest. Blended beat ratio was 69.6%, which was the third highest.

Medical – Drugs belongs to a top-ranked Zacks industry (top 23%). Shares of the industry can be availed at 17.53x forward earnings or less against the S&P 500 ETF IVV’s P/E multiple of 19.04x. Though low P/E does not indicate future stock performance, cheaper valuation is always lucrative amid a spate of good news. The projected ESP growth rate of the sector was 9.49% versus 5.68% of IVV. Debt-to-equity ratio of the industry (0.2x) is much lower than that of 0.72x.

Large Cap Pharmaceuticals also belongs to a top-ranked Zacks industry (top 36%). The industry has a forward P/E ratio of 14.63x, which ensures its undervalued status. Debt-to-equity ratio of the industry (0.71x) is in line with that of the S&P 500.

There was positive news in the industry. Biogen (NASDAQ:BIIB) spread optimism into the broad healthcare sector following its Alzheimer’s treatment report. The biotech company decided to go ahead with the approval of aducanumab, a treatment for early Alzheimer’s diseases, after the drug met the primary endpoint of a Phase 3 Emerge study (read: Healthcare ETFs Win in October: Here's Why).

Hepion Pharmaceuticals also led the sector higher following data that showed potential for its CRV431 as a drug candidate for liver disease treatment. Alexion Pharmaceuticals (NASDAQ:ALXN) agreed to acquire a clinical-stage biopharmaceutical company Achillion Pharmaceuticals (NASDAQ:ACHN) . All these positive developments fueled the rally in the pharma and biotech sectors in October.

Below we highlight top-performing ETFs and stocks from the sector in the past four-week period (as of Nov 6, 2019) (see all Health Care ETFs here).

Top Stocks

GlycoMimetics Inc. ( (NASDAQ:GLYC) ) – Up 31.6%; Zacks Rank #2 (Buy)

Rigel Pharmaceuticals Inc. (NASDAQ:RIGL) – Up 31.1%; Zacks Rank #2

Ironwood Pharmaceuticals Inc. ( (NASDAQ:IRWD) ) – Up 28.3%; Zacks Rank #1(Strong Buy)

Dermira Inc. ( (NASDAQ:DERM) ) – Up 23.5%; Zacks Rank #1

Top ETFs

SPDR S&P Pharmaceuticals (NYSE:XPH) ETF ( (HN:XPH) ) – Up 9.6%; Zacks Rank #3 (Hold)

Invesco Dynamic Pharmaceuticals ETF ( (WA:PJP) ) – Up 6.3%; Zacks Rank #3

VanEck Vectors Pharmaceutical ETF ( (ASX:PPH) ) – Up 6.1%; Zacks Rank #3

First Trust Nasdaq Pharmaceuticals ETF (FTXH) – Up 5.2%; Zacks Rank #3

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