Author Archives: Scalper1

Solid Q1 Earnings Fail To Boost Pharma ETFs

Like the past several quarters, the healthcare sector has impressed with strong Q1 earnings. This is especially true as total earnings for 79.2% of the sector’s total market capitalization are up 8.8% on revenue growth of 11.2%, with earnings and revenue beat ratios of 80% and 70%, respectively. In fact, healthcare is the fourth best performing sector in terms of earnings growth trailing autos, construction, and consumer discretionary. Among the most notable players, Johnson & Johnson (NYSE: JNJ ) was the first major drug company to report earnings on April 19, followed by Eli Lilly and Company (NYSE: LLY ) and Bristol-Myers Squibb Company (NYSE: BMY ) on April 26 and April 28, respectively. Two other major U.S. drug companies – Pfizer (NYSE: PFE ) and Merck (NYSE: MRK ) – reported on May 3 and May 5, respectively. These industry primes posted solid results raising their full-year outlook that boosted investors’ confidence in the space. Notably, Eli Lilly missed our earnings estimates while Merck lagged on the revenue front. Johnson and Johnson Earnings in Focus The world’s biggest maker of healthcare products continued its long streak of earnings beat and beat our estimate on the top line buoyed by strong prescription drug revenues and a weakening dollar. Earnings per share came in at $1.68, four cents ahead of the Zacks Consensus Estimate and 7.7% higher than the year-ago earnings. Revenues inched up 0.6% year over year to $17.5 billion and edged past the Zacks Consensus Estimate of $17.42 billion (read: Healthcare ETFs to Buy on Blockbuster J&J Q1 Results ). Johnson & Johnson raised its guidance for fiscal 2016. The company now expects revenues in the range of $71.2-$71.9 billion compared with the previous forecast of $70.8-$71.5 billion. Additionally, the earnings per share guidance has been raised from $6.43-$6.58 to $6.53-$6.68. The Zacks Consensus Estimate at the time of the earnings release was pegged at $71.5 billion for revenues and $6.52 for earnings per share. These were higher than the mid-point of the company’s projection. JNJ has gained 0.2% to date since its earnings announcement. Pfizer Earnings in Focus The U.S. drug giant also topped the Zacks Consensus Estimate for both the top and the bottom lines, and raised the guidance for fiscal 2016. Earnings per share of 67 cents and revenues of $13.0 billion were ahead of our estimates by 12 cents and $1.0 billion, respectively. Notably, earnings per share grew 32% while revenues jumped 20% year over year. For fiscal 2016, Pfizer upped its revenue guidance to $51-53 billion from $49-$51 billion and earnings per share guidance to $2.38-$2.48 from $2.20-$2.30. The mid-points were much higher than the Zacks Consensus Estimate of $51.3 billion for revenues and $2.29 for earnings per share at the time of the earnings release. Shares of PFE are down 0.4% since the earnings announcement. Merck Earnings in Focus Earnings per share came in at 89 cents, four cents ahead of the Zacks Consensus Estimate and 4.7% higher than the year-ago earnings. Revenues slipped 1.2% year over year to $9.3 billion, and were slightly below the Zacks Consensus Estimate of $9.5 billion. Merck now expects earnings per share in the range of $3.65-$3.77 and revenues in the band of $39.0-$40.2 billion for 2016. This is in contrast with the previous guidance of $3.60-$3.75 and $38.7-$40.2 billion, respectively. The Zacks Consensus Estimate at the time of the release was pegged at $3.71 for earnings per share and $40.1 billion for revenues. The stock has lost about 1.3% following its earnings announcement. Bristol-Myers Earnings in Focus Bristol-Myers reported earnings per share of 74 cents, outpacing our estimate by 8 cents and increasing 4% from the year-ago quarter. Also, revenues rose 9% to $4.39 billion and edged past the Zacks Consensus Estimate of $4.24 billion. Like the other drug makers, the company also revised its earnings per share outlook upward to $2.50-$2.60 from $2.30-$2.40 for fiscal 2016. The low end was much higher than our estimate of $2.42 at the time of the earnings announcement. Revenues are expected to grow in the low double-digit range. Shares of BMY are down 1.5% to date since the earnings announcement. Eli Lilly Earnings in Focus Earnings of 83 cents at Eli Lilly missed the Zacks Consensus Estimate by a couple of cents and came in 5% lower than the year-ago earnings. Revenues grew 5% to $4.86 billion but fell short of our estimate of $4.87 billion. However, Eli Lilly raised its 2016 earnings per share guidance to $3.50-$3.60 from $3.45-$3.55 and revenue guidance to $20.6-$21.1 billion from $20.2-$20.7 billion. The Zacks Consensus Estimate at the time of the earnings release was pegged at $3.55 for earnings and $20.7 billion for revenues. Shares of LLY have tumbled 3.41% since the earnings release. ETF Angle The string of earnings beat and upbeat outlook failed to boost pharma stocks and ETFs as the industry is grappling with drug pricing issues. Below, we have highlighted the ETFs in detail: PowerShares Dynamic Pharmaceuticals Portfolio ETF (NYSEARCA: 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 $1.1 billion and sees good volume of around 192,000 shares a day. The fund charges 56 bps in fees and expenses from investors. Holding 23 stocks, the fund invests over 5% share each in the in-focus five firms. The ETF shed about 7.4% over the past 10 days and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook. iShares U.S. Pharmaceuticals ETF (NYSEARCA: IHE ) This ETF provides exposure to 42 pharma stocks by tracking the Dow Jones U.S. Select Pharmaceuticals Index. The in-focus firms occupy the top five holdings in the basket accounting for combined 40.6% of total assets, suggesting heavy concentration. The product has $607.8 million in AUM and charges 45 bps in fees and expense. Volume is moderate as it exchanges about 52,000 shares a day. The fund has lost 7.9% over the past 10 days and has a Zacks ETF Rank of 3 with a Medium risk outlook. SPDR S&P Pharmaceuticals ETF (NYSEARCA: XPH ) This fund provides exposure to the pharma companies by tracking the S&P Pharmaceuticals Select Industry Index. With AUM of over $465.9 million, it trades in moderate volume of around 190,000 shares a day and charges 35 bps in fees a year. In total, the product holds 40 securities with the in-focus five firms taking nearly 5% share each. The product was down 9.73% in the same period and has a Zacks ETF Rank of 3 with a Medium risk outlook. Market Vectors Pharmaceutical ETF (NYSEARCA: PPH ) This ETF follows the MVIS US Listed Pharmaceutical 25 Index and holds 26 stocks in its basket. Pfizer, Bristol-Myers, Johnson & Johnson and Merck make up for over 5% share each while Eli Lilly accounts for 4.7% of assets. The product has amassed $261.3 million in its asset base and trades in a moderate volume of about 105,000 shares a day. Expense ratio came in at 0.36%. The fund has lost 5.3% over the past 10 days. It has a Zacks ETF Rank of 2 or ‘Buy’ rating with a Medium risk outlook. Link to the original post on Zacks.com

Diversification: The Only Free Lunch On Wall Street

The value of long term asset diversification , sometimes known as “the only free lunch on Wall Street” is discussed in a recent MarketWatch article offering “Five Steps to Beating the Market.” “Stock investors typically regard ‘the market’ as essentially the Standard and Poor’s 500 Index of large U.S. growth stocks.” The article tracks and summarizes financial performance records since 1928 for large-cap blend the (S&P 500), large-cap value, small-cap blend, small-cap value stocks and a four-fund combination of these asset classes. In every summary, the four-fund combination produced a superior return to the S&P 500 alone. However, the price investors pay for higher performance is higher volatility. “For patient investors, those temporary losses are a relatively small price to pay for tripling the long-term return.” The following “five ways to beat the market” are drawn from the data the tables below. According to the article, investors should realize: Outcomes are not predictable at the outset. Longer time periods make more dependable returns. The correlation between levels of risk and expected return may be less clear with a diverse portfolio over long investment periods. “When you compare the worst 40-year periods, you find that two of three other asset classes (SCB and SCV) had not only higher average returns but also better worst-case returns.” A diversified portfolio has a higher probability of meeting or exceeding 10% long-term returns. “Two of the other three asset classes, plus the four fund combo, had no 40-year periods at all with returns less than 10%.” “Wall Street tries very hard to convince investors they can beat the market by hiring ‘the right manager’ to choose stocks,” but the article suggests that “beating the S&P 500 index doesn’t depend on a manager. It’s the asset classes that do that. Click to enlarge Click to enlarge

Will Volatility ETFs Rule In May?

The start of May has been tumultuous for the global stock market with volatility levels flaring up once again. The sluggish manufacturing numbers from China and U.S., a bout of softer-than-expected economic readings out of Europe and a weaker-than-expected April ADP jobs report in the U.S. have data cast a pall over the market all over again (read: Manufacturing Churns Out Slow Growth in US–ETFs in Focus ). This is especially true as the major U.S. benchmarks nosedived in last two days (as of May 4, 2016). The S&P 500 has reached the lowest level since April 11 . In fact, the ongoing earnings recession, tepid economic readings along with global growth worries have rattled the faith of investors. They have taken somber economic growth on the chin for long and sent the S&P 500 rallying as much as 15% from a February low. However, investors should note that signs of stability in the oil patch have done a lot to cool jittery investors’ nerves in this timeframe (read: MLP ETFs–Time to Invest on Oil Rebound or Too Risky? ). Now with growth worries back on the table, volatility levels have heightened and exchange-traded products designed to track the market volatility have received a shot in the arm. Volatility level is best represented by the CBOE Volatility Index (VIX). This fear gauge measures investors’ perception of the market’s risk and tends to rise during a downtrend or when investor panic starts to set in. As U.S. equities faltered, the volatility index climbed 9.3% in the past two trading days (as of May 4, 2016), suggesting that risks are rising and investors could definitely benefit from this trend. There are several ETF/ETN options available in the market that can provide some exposure to volatility. These products have proven themselves as short-time winners in chaotic times. Below we have highlighted short-term volatility products that will likely spring higher as long as growth issues continue to unsettle the global markets. As a caveat, investors should note that these products are meant for short-term trading: Regular Volatility ETFs A popular ETN option providing exposure to volatility, the iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA: VXX ) . The ETN focuses on the S&P 500 VIX Short-Term Futures Index Total Return. The index gives exposure to a daily rolling long position in the first and second month VIX futures contracts and replicates ‘ market participants’ views of the future direction of the VIX index at the time of expiration of the VIX futures contracts comprising the Index’. There are other products like the ProShares VIX Short-Term Futures ETF (NYSEARCA: VIXY ) and the VelocityShares Daily Long VIX Short-Term ETN (NASDAQ: VIIX ) . Leveraged Volatility ETFs Investors seeking to earn exorbitant gains in a very short time frame could tap leveraged volatility ETFs. Currently, there are two options available in this category – the ProShares Ultra VIX Short-Term Futures ETF (NYSEARCA: UVXY ) and the VelocityShares Daily 2x VIX Short Term ETN (NASDAQ: TVIX ) . Both products track the S&P 500 VIX Short-Term Futures Index. Link to the original post on Zacks.com