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Healthcare Mutual Funds To Bounce Back After Q1 Debacle: 5 Picks

The healthcare space was mostly out of favor in the first quarter following Democratic Presidential Candidate, Hillary Clinton’s allegation on “price gouging.” The massive decline in Valeant Pharmaceuticals International, Inc.’s (NYSE: VRX ) shares also had an adverse impact on biotech stocks, eventually dragging the healthcare sector down. Healthcare mutual funds weren’t spared as the category turned out to be the worst performer in the first quarter. Foremost funds from the healthcare space failed to end in positive territory during the period. Despite this hiccup, investors shouldn’t be demoralized as the long term bodes well for such funds. The healthcare sector is poised to gain from an ageing population both at home and abroad. And with an increase in mergers, and innovative product pipelines and approvals, it’s just a matter of time before the sector bounces back. Not to forget that biotech stocks have already rebounded in the past few days after being torn apart in the first three months of the year. Banking on this optimism, it will be prudent to invest in healthcare funds that have given solid returns over a long period of time and also boast strong fundamentals. (Read: 3 Healthcare Funds to Buy on Biotech Rebound ) Healthcare Losing Ground in Q1 It’s been an awful first quarter for the healthcare sector. Political scrutiny about drug prices took a toll on healthcare stocks. Healthcare Equity Funds nosedived 13.28% during the first quarter, according to Morningstar. Among the worst performing drug makers were Mallinckrodt Public Limited Company (NYSE: MNK ), Horizon Pharma plc (NASDAQ: HZNP ) and Endo International plc (NASDAQ: ENDP ), whose shares plunged 17.9%, 21.4% and 54%, respectively, in the first quarter. If you think that was bad, then biotechs had it even worse. The iShares NASDAQ Biotechnology Index plummeted almost 23% in the first quarter. The Valeant Pharmaceuticals disaster was also responsible for the significant underperformance. U.S. lawmakers investigating Valeant’s pricing practices, accusations about accounting irregularities and delay in filing annual reports practically ruined the company. In the first quarter alone, Valeant’s shares plummeted 36.8%. With the new tax inversion rules the pain seems to have intensified. According to the U.S. Treasury Department and Internal Revenue Service, the rule bars U.S. companies from undertaking inversion transactions if they have done so in the past three years. These inversion deals were a ploy for U.S. drug companies to dodge tax bills by relocating their headquarters abroad. On the earnings front, things are also looking gloomy. First-quarter earnings from the healthcare sector are anticipated to grow a meager 0.6% from the year-ago level compared with 9.3% growth witnessed in the previous quarter. (Read: Previewing the Q1 Earnings Season ) Tailwinds are Strong Even though healthcare witnessed a dismal first quarter, the sector is positioned to grow in the future thanks to an ageing American population. There are about 77 million U.S. baby boomers, which is quite a significant number. An ageing population bodes well for the healthcare sector as they require more medical attention. Along with it, an ageing China also provides long-term opportunities for both U.S. pharmaceutical and medical technology companies. The need to trim costs and tap growth opportunities are driving healthcare firms into mergers and acquisitions (M&A). Additionally, the Fed’s dovish outlook to proceed cautiously on hiking rates is also expected to boost M&A deals. Also, the first FDA-approved biosimilar, Zarxio, hit the market last year. Biotech companies are now vying to enter this high revenue generating space. Several other products such as Imlygic, Ibrance, Strensiq, Genvoya and, PCSK9 inhibitors, Praluent and Repatha also got approved. This in turn is expected to help companies from the healthcare space to generate steady revenues. Thanks to the mandated healthcare coverage in the U.S., more Americans are seeking treatment, which is also a net positive for healthcare firms. 5 Healthcare Mutual Funds to Invest In As discussed above, these tailwinds may collectively act as growth facilitators and help the healthcare sector overcome the drubbing it took in the first quarter. In case of inversion rules, healthcare companies will continue to seek creative ways to relocate their tax residence to avoid paying the lofty taxes at home, as per the Treasury Secretary Jacob J. Lew. Since the long run holds good for the healthcare sector, it will be wise to buy mutual funds associated with the sector. These funds have yielded positive returns for a long time despite being in the red in the first quarter. Moreover, these funds are fundamentally solid, which will eventually help them gain in the future as well. We have selected five healthcare mutual funds that have impressive 3-year and 5-year annualized returns and carry a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). These funds also possess a relatively low expense ratio and have minimum initial investment within $5000. T. Rowe Price Health Sciences Fund (MUTF: PRHSX ) invests a large portion of its assets in companies engaged in the development and distribution of health care products. PRHSX’s 3-year and 5-year annualized returns are 19.7% and 21.1%, respectively. Annual expense ratio of 0.76% is lower than the category average of 1.35%. PRHSX has a Zacks Mutual Fund Rank #1. Fidelity Select Health Care Portfolio (MUTF: FSPHX ) invests a major portion of its assets in companies involved in the manufacture and sale of products used in connection with health care. FSPHX’s 3-year and 5-year annualized returns are 19.2% and 18.8%, respectively. Annual expense ratio of 0.74% is lower than the category average of 1.35%. FSPHX has a Zacks Mutual Fund Rank #2. Hartford Healthcare Fund A (MUTF: HGHAX ) invests the majority of its assets in the equity securities of health care-related companies worldwide. HGHAX’s 3-year and 5-year annualized returns are 17.3% and 17.7%, respectively. Annual expense ratio of 1.28% is lower than the category average of 1.35%. HGHAX has a Zacks Mutual Fund Rank #2. Live Oak Health Sciences Fund (MUTF: LOGSX ) invests a large portion of its assets in equity securities of health sciences companies. LOGSX’s 3-year and 5-year annualized returns are 16.1% and 15.7%, respectively. Annual expense ratio of 1.08% is lower than the category average of 1.35%. LOGSX has a Zacks Mutual Fund Rank #2. Fidelity Select Biotechnology Portfolio (MUTF: FBIOX ) invests the majority of its assets in companies engaged in the manufacture and distribution of various biotechnological products. FBIOX’s 3-year and 5-year annualized returns are 16.1% and 23.7%, respectively. Annual expense ratio of 0.74% is lower than the category average of 1.35%. FBIOX has a Zacks Mutual Fund Rank #2. Link to the original post on Zacks.com

Verizon Earnings Call: Yahoo, Frontier Deal, Strike, Wireless War

Verizon Communications ( VZ ), on the hunt for Internet pioneer  Yahoo ( YHOO ), is expected to update 2016 guidance when it reports Q1 earnings on Thursday, in the wake of selling wireline assets in three states to Frontier Communications ( FTR ). Verizon and AT&T ( T ) were among the best performing large-cap stocks in the S&P 500 in the March quarter. AT&T reports Q1 results on April 26. Verizon sold wireline assets in California, Florida and Texas to Frontier for $10.5 billion. The deal closed in early April. Aside from Verizon’s stated interest in acquiring Yahoo , analysts may ask for management views on how a strike by 39,000 wireline workers will impact Verizon’s FiOS business. “We expect Verizon to update 2016 guidance post the recent close of the Frontier deal, including clarity around EBITDA (earnings before interest expenses, taxes, depreciation and amortization) guidance and subsequent cost cuts, which we believe management has thus far conservatively guided,” said Colby Synesael, an analyst at Cowen & Co., in a report. “While it’s likely someone will bring up Yahoo during Q&A, it’s unlikely management provides much of a response.” Analysts polled by Thomson Reuters expect Verizon’s Q1 profit to rise 4% to $1.06 per share, with revenue growing 2%; these predictions include Verizon’s June 2015 acquisition of AOL. Wireless competition remained intense in Q1 amid a flurry of video-related promotions, analysts say. UBS analyst John Hodulik forecasts that Verizon will lose postpaid phone subscribers in Q1, as it did in the March quarters in 2014 and 2015.

Here’s Why IBM Is Falling Despite A Solid Q1 Earnings Beat

IBM ( IBM ) was trading down Tuesday, following a first-quarter earnings report late Monday that beat estimates but still left room for concern. IBM has been undergoing a major transition, shedding older technologies while making a concerted push into growth areas such as cloud computing, Big Data analytics, security and mobile computing — areas it calls strategic imperatives. The transition helps explain why revenue growth has declined each quarter for the past four years. In its Q1 earnings results, IBM reported revenue of $18.7 billion, down 4.6% from the year-earlier quarter but edging the Wall Street consensus estimate of $18.3 billion. Revenue from strategic imperatives rose 14%. Total cloud revenue rose 34%. Earnings per share ex items of $2.35 easily beat views of $2.09, as polled by Thomson Reuters, but were down 19% and marked the fourth quarter in a row of EPS declines. IBM stock was down more than 6%, near 143, in afternoon trading in the stock market today , presumably on the view that Q2 expectations are below estimates. IBM does not provide formal quarterly guidance, but its implied EPS guidance of $2.85 for Q2 is below the consensus estimate of 3.01. Despite the Q1 beat, IBM did not increase but instead maintained its full-year earnings outlook. IBD’s Take: How healthy is IBM’s stock and how does it stack up vs. rivals? Find out at IBD Stock Checkup RBC Capital Markets analyst Amit Daryanani maintained a sector perform rating on IBM stock, and a price target of 155. “We believe the competitive challenges are emerging from companies seeking to build a business model similar to IBM’s, notably Hewlett-Packard Enterprise ( HPE ), Cisco ( CSCO ), Oracle ( ORCL ), EMC ( EMC ), and Dell,” he wrote. Of these competitors, he said, Hewlett-Packard is the closest. Another is Cisco. ‘Attempting To Recreate The IBM Model’ “Beyond Hewlett-Packard and Cisco, there are also others attempting to recreate the IBM model,” he wrote. A harsher report on IBM came from Credit Suisse analyst Kulbinder Garcha, who reiterated an underperform rating and a price target of 110 on IBM stock. “We believe the quality of earnings was again low and the manner in which IBM has chosen to manage its business seems unsustainable,” Garcha wrote. “We believe the secular and structural challenges facing IBM remain, and specifically see limited improvement in Services and Software margins.” UBS analyst Steven Milunovich maintained a neutral rating on IBM but raised his price target to 150 from 132. “The quarter was mixed with revenue and EPS beating due to currency improvement, acquisitions, and the Japan tax rebate,” he wrote. “We give IBM credit for changing the narrative,” with an emphasis on becoming a leader in the new category of Cognitive Computing, which includes its Watson computer business, he wrote. Drexel Hamilton raised its revenue forecast, maintained its EPS projection and raised the price target to 166 from 160.