The healthcare space has seen rough trading this year due to a
biotech sell-off as investors are pulling out capital from high
growth and high beta stocks (read:
3 ETFs Tumble Most on Biotech Sell-off
Amid this environment, the first major company reporting earnings
this season in the healthcare world - Johnson & Johnson's (JNJ)
- surprised the market with solid Q1 results boosted by the
turnaround in pharma business. Further, the healthcare giant raised
its full year earnings outlook, suggesting strong growth ahead.
Earnings per share came in at $1.54, easily outpacing the Zacks
Consensus Estimate of $1.48 and the year-ago earnings of $1.44.
Revenues rose 3.5% to $18.12 billion, trumping the Zacks Consensus
Estimate of $17.99 billion.
The robust performance was driven by new and existing drugs sales
as well as reduced production and administration expenses. While
the drop in consumer products revenue and flat medical device
revenue weighed on top-line growth, higher pharmaceutical sales
drove the overall results (read:
3 Pharma ETFs Beating the Market
For 2014, the company projects revenues in the range of $74.5-$75.3
billion and raised its earnings per share outlook to $5.80-$5.90
from $5.75-$5.85. The earnings figure is above the Zacks Consensus
Estimate of $5.83 and 2013 reported earnings of $5.52, reflecting
bullishness for this company.
Based on earnings beat and stronger-than expected earnings
guidance, JNJ shares was up over 2% at the close of the day on
elevated volume of nearly 1.6 times the normal average daily
volume. In fact, shares are trading at its highest level in more
than 34 years and gained 21% over the past one-year period.
This strong performance by JNJ puts healthcare ETFs in focus for
the coming days, especially the funds having double-digit
allocation to this baby products and biological drugs maker.
Investors should closely monitor the movement in these funds and
could catch the opportunity from any surge in the JNJ price (see:
all the Healthcare ETFs here
ETFs in Focus
iShares U.S. Pharmaceuticals ETF (
This ETF provides exposure to the pharmaceutical corner of the
broad healthcare world 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 13.42%.
The product has $624.1 million in AUM and charges 46 bps in fees
and expense. Volume is light as it exchanges just 33,000 shares a
day. The fund added 2.9% so far this year and has a Zacks ETF Rank
of 2 or 'Buy' rating with a 'Medium' risk outlook.
Health Care Select Sector SPDR Fund (
The most popular healthcare ETF on the market, XLV follows the
S&P Health Care Select Sector Index. This fund manages about
$9.8 billion in its asset base and trades in heavy volume of more
than 8 million. Expense ratio came in at 0.16% annually. In total,
the fund holds about 56 securities in its basket. Of these firms,
JNJ takes the first spot, making up roughly 12.79% of the assets.
Pharma accounts for 46% share from a sector look while biotech,
healthcare providers and services, and equipment and suppliers make
up for double-digit exposure. The fund gained nearly 2.5% in the
year-to-date time frame and has a Zacks ETF Rank of 3 or 'Hold'
rating with a 'Medium' risk outlook (read:
ETF Sector Rotation: Industrials Out, Healthcare
iShares U.S. Healthcare ETF (
This fund provides exposure to 111 securities by tracking the Dow
Jones U.S. Health Care Index. Here again, Johnson & Johnson
dominates the fund's return at 12.07% of total assets. In terms of
industrial exposure, Pharma takes the top spot at 49%, closely
followed by biotech (20%), medical equipment (17%) and healthcare
The product has amassed nearly $2.6 billion in its asset base while
charges 45 bps in annual fees. It trades in good volume of more
than 267,000 shares a day, suggesting a relatively tight bid/ask
spread. IYH is up 2.14% year-to-date and has a Zacks ETF Rank of 3
or 'Hold' rating with a 'Medium' risk outlook.
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ISHARS-US PHARM (IHE): ETF Research Reports
ISHARS-US HLTHC (IYH): ETF Research Reports
JOHNSON & JOHNS (JNJ): Free Stock Analysis
SPDR-HLTH CR (XLV): ETF Research Reports
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