First it was the biotech stocks, now the large pharmaceuticals
are getting in on the act.
The two sectors have been attracting money all year and were
barely phased by the markets largest pullback in months. The
combination of an optimistic view on the pipeline of drugs and an
increase in M&A activity has been propelling the related ETFs
to new all-time highs.
On Tuesday a $25 billion deal was announced that has Actavis
) buying Forest Laboratories (NYSE:
) in both cash and equity. FRX soared 28 percent on the takeover
announcement and the acquirer also had a solid day, gaining five
percent. The deal was just one of several that have been
announced in the last few months as consolidation has become a
major theme in the health care sector.
Bitcoin Short-Term Pricing Tied To One
Attempting to pick the next takeover candidate may be fun for
investors but in reality the odds of being successful is not
high. A better option is to look to the related ETFs that offer
investors a basket of stocks in the sector with potentially the
takeover candidate as a holding.
The iShares U.S. Pharmaceuticals ETF (NYSE:
) is a basket of 36 stocks that was up three percent yesterday as
it closed at a new all-time high. Over the last 12 months the ETF
has nearly doubled the performance of the S&P 500 with a gain
of 41 percent. The ETF's seventh largest holding is ACT, as FRX
is now number eight.
The ETF's top holding is Johnson & Johnson (NYSE:
) with an allocation of 11 percent, making the portfolio top
heavy, but it has not held it back from outperforming.
When comparing IHE to its peers it falls in the middle as far
as performance over the last 12 months. The Market Vectors
Pharmaceutical ETF (NYSE:
) is up 36 percent and the PowerShares Dynamic Pharmaceuticals
) is up a whopping 57 percent.
When considering adding any of the pharmaceutical ETFs to a
portfolio at this point the key will be patience. Chasing an ETF
or a stock at an all-time high is never the best strategy. IHE
pulled back a healthy and quick 5 percent in January and instead
of running away from the weakness, the best strategy is to use
the discounted price to begin to build a position. The next
support level on IHE is at the $126 area and investors that are
able to exercise patience will be able to buy the ETF at a lower
entry price, thus resulting in a better reward-to-risk setup.
(c) 2014 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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