The Health and the Biotech space saw some terrible trading
lately, hit hard by bubble fears as the Fed unwinds its massive
bond buying program.
However, the earnings season has brought in some relief to this
sector, with a series of earnings beats by some of the major
companies in this space such as
Johnson & Johnson
Though another biotech major,
), managed to beat the Zacks Consensus Estimate on the earnings
front, it missed our estimates for revenue (read:
Pharma ETFs: A Safe Haven from the Biotech Stock
Adding to investor cheer, the No. 2 U.S. drug maker
Merck & Co.
) surprised the markets by posting better-than-expected earnings
for first quarter 2014. Though the company missed our estimates on
revenues, sharply lower research and development costs enabled the
company to boost its bottom line.
Merck Earnings in Focus
Earnings per share came in at 88 cents, comfortably beating our
estimates by roughly 11%. However, revenues for the quarter
declined 3.8% to $10,264 million, missing the Zacks Consensus
Estimate of $10,448 million.
The company's top line was primarily hit by competition from
generic drugs due to patent expirations and negative currency
Any Survivors from the Biotech ETF Meltdown?
For 2014, Merck reaffirmed its earnings guidance of $3.35-$3.53 per
share on revenues of $42.4-$43.2 billion. The Zacks Consensus
Estimate for both earnings and revenues is well within the guidance
Merck to Sell Consumer Health Care Business
Moreover, the day prior to the earnings release, Britain's Reckitt
Benckiser confirmed that it was in talks to buy Merck's consumer
health business. Merck is in final talks with Reckitt to divest
this business. The segment reported a 4% drop in revenues to $546
million during the reported quarter, hurt by a shortened allergy
season in North America.
Given the strong earnings beat and the news of a sell-off of the
company's loss making unit, Merck shares jumped 3.6% to close at
$58.72. In fact, positive investor sentiment led the company's
share prices to hit a new 52-week high of $58.86.
Buoyed by the strong performance from MRK, healthcare ETFs
that have exposure to this stock also climbed during recent
trading. The below mentioned ETFs, which also have good amount of
exposure to MRK, have seen decent performance in the past two
Investors should keep a close eye on these funds to tap any
opportunity of a surge in their prices (see:
all the Healthcare ETFs here
ETFs in Focus
iShares U.S. Pharmaceuticals ETF (
The fund provides exposure to the healthcare sector by tracking the
Dow Jones U.S. Select Pharmaceuticals Index. The fund holds 38
stocks in its basket with Johnson and Johnson taking the top
position at 12.92%, followed by Pfizer Inc. at 10.89% and Merck
& Co Inc. at 9.57%.
The product manages an asset base of $659.8 million and charges 46
bps in fees and expense. The fund has added 5.82% in the past two
weeks and rose 0.7% in yesterday's session (read:
4 ETFs Riding High in Q2
IHE has a Zacks ETF Rank of 2 or 'Buy' rating.
Health Care Select Sector SPDR Fund
With an asset base of $9.5 billion, XLV is the most popular fund in
its space. The fund holds a basket of 56 stocks with Merck
occupying 7.5% of the assets. JNJ occupies the top spot with 12.95%
allocation, while the fund also has roughly 5% exposure to Gilead
The fund rose 0.6% in recent trading and it has added 3.02% in the
past two weeks. The product currently has a Zacks ETF Rank of 3 or
'Hold' rating with a 'Medium' risk outlook.
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GILEAD SCIENCES (GILD): Free Stock Analysis
ISHARS-US PHARM (IHE): ETF Research Reports
JOHNSON & JOHNS (JNJ): Free Stock Analysis
MERCK & CO INC (MRK): Free Stock Analysis
SPDR-HLTH CR (XLV): ETF Research Reports
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