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Upbeat Aerospace And Defense Results Lift ETFs

A major part of the first-quarter earnings season is behind us and a combination of factors including oil price turbulence and global growth uncertainties have weighed on the results . Despite headwinds, aerospace and defense, a relatively smaller sector within the S&P 500, held up well this past quarter. However, it’s not surprising given the low estimates, which had fallen ahead of this reporting cycle. Aerospace and defense stocks have reported better-than-expected results despite sluggish growth numbers. As per the Zacks Earnings Trend report , earnings declined 6.6% while revenues increased 3.8% year over year. The earnings beat ratio of the aerospace and defense companies is 77.8%, while the revenue beat is 88.9% . The U.S. defense sector performed modestly on the back of elevated geopolitical risk, a recovering U.S. economy and strong commercial sales. Escalating geo-political tensions in Eastern Europe, the Middle East and Syria have forced several countries to step up their defense, in turn boosting demand for defense products. Moreover, the aerospace and defense industry has gained from fleet renewals at airlines worldwide. Demand for more fuel-efficient aircraft, a growing international market and increasing application of unmanned aircraft in warfare today have driven up sales in this sector. Below we have highlighted in greater detail the earnings of some of the major aerospace and defense companies which really drive this sector’s outlook. Quarterly Earnings in Focus Pentagon’s prime contractor, Lockheed Martin Corp. (NYSE: LMT ), reported an encouraging first quarter. It reported better-than-expected earnings and revenues with both beating the Zacks Consensus Estimate by 2.8% and 5.5%, respectively. Lockheed Martin raised its 2016 outlook and now expects earnings of about $11.50–$11.80 per share (earlier projection: $11.45–$11.75) on revenues of approximately $49.6 billion to $51.1 billion (earlier projection: $49.5 billion to $51 billion). The stock jumped after the earnings release on solid outlook, impressive revenue growth and potential share buybacks. Aerospace giant, The Boeing Company (NYSE: BA ) delivered first-quarter 2016 adjusted earnings of $1.74 per share, missing the Zacks Consensus Estimate by 3.9%. Earnings also decreased 12% year over year. Revenues came in at $22.63 billion for the quarter, exceeding the Zacks Consensus Estimate of $21.24 billion and increasing 2% from the year-ago level. For 2016, the company still expects earnings to be in the range of $8.15−$8.35 per share on revenues of $93−$95 billion. Investors reacted positively to the company’s results. Northrop Grumman Corp. (NYSE: NOC ) reported upbeat first-quarter 2016 results with revenues and earnings beating the Zacks Consensus Estimate by 0.8% and 12.1%, respectively. The maker of the current B-2 bomber and Global Hawk unmanned planes expects earnings to be in the range of $10.40 to $10.70 per share (prior projection: $9.90–$10.20) on revenues of $23.5 billion to $24 billion in 2016. The stock gained significantly after the company released its results. General Dynamics Corp. ’s (NYSE: GD ) first quarter earnings of $2.34 per share topped both the Zacks Consensus Estimate and the year-ago figure of $2.14 by 9.3%. Revenues of $7.7 billion beat the Zacks Consensus Estimate by 0.4% benefiting from strong demand for defense products during the quarter. Investors reacted positively with the stock gaining after the company released its results. United Technologies Corporation (NYSE: UTX ) reported first-quarter adjusted earnings of $1.47 per share, up 2.1% year over year. The figure also surpassed the Zacks Consensus Estimate of $1.39. Quarterly revenues of $13.4 billion also beat the Zacks Consensus Estimate of $13 billion. However, volatility in foreign currency adversely impacted the revenues of most of the company’s segments during the reported quarter. The company reaffirmed its 2016 guidance. The stock gained post releasing results. ETFs to Play The gains in aerospace and defense companies have put the spotlight on their ETFs. Below, we have these ETFs in detail: iShares U.S. Aerospace & Defense ETF (NYSEARCA: ITA ) The fund, tracking the Dow Jones U.S. Select Aerospace & Defense Index, holds 37 securities in its basket with Boeing, United Technologies, Lockheed Martin, General Dynamics and Northrop Grumman being the top five stocks. All of them together account for more than 38% of the fund assets. With an asset base of nearly $682.7 million, the fund trades in moderate volumes of roughly 83,000 shares a day and charges an annual fee of 45 bps per year. The fund returned 1.25% in the last 10 days (as of May 5, 2016) and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook . PowerShares Aerospace & Defense Portfolio (NYSEARCA: PPA ) PPA follows the SPADE Defense Index, with 50 companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. Lockheed Martin, Boeing, United Technologies, General Dynamic and Northrop Grumman are among the top 10 holdings and together occupy almost one third of total fund assets. The product has managed to garner nearly $296 million in assets so far and trades in an average volume of 76,000 shares per day. It charges 66 bps in annual fees and gained 0.40% in past 10 days. It currently carries a Zacks ETF Rank #3 with a Medium risk outlook. SPDR S&P Aerospace & Defense ETF (NYSEARCA: XAR ) XAR tracks the S&P Aerospace and Defense Select Industry index, holding a basket of 33 stocks. Northrop Grumman, Lockheed Martin, General Dynamics and Boeing score among the top 10 holdings. This product has attracted an AUM of nearly $166.9 million and exchanges nearly 18,000 shares in hand per day. It charges 35 bps in fees per year and gained 1% in the past 10 days. The fund has a Zacks ETF Rank #3 with a Medium risk outlook . Original post

ETF Strategy: Bullish On UDN, GDX, GLD After Weak Jobs Numbers; Bearish On SPY, IBB

The much anticipated labor market data was released at the time of writing this article. The report indicates that the U.S. economy is not out of the woods yet. The economy added just 160,000 jobs in the month of April, well below the consensus forecast of 202,000 job additions. While markets have slipped on the disappointing job numbers, it is possibly due to the fact that it creates uncertainty over the pace of rate hikes. Conflicting Signals From the Fed The Federal Reserve hiked benchmark interest rates for the first time in almost a decade in December last year. At the time the Fed had anticipated four more rate hikes in 2016. But extreme volatility in global markets seen at the start of this year has forced the Fed to change its stance. The Fed now expects two further rate hikes. Markets anticipate just one. With today’s disappointing job numbers, even a solitary rate hike now looks unlikely. I Am Bullish on UDN, GDX and GLD The Fed has reiterated time and again that it will be cautious with future rate hikes. Today’s weak job numbers give the central bank a strong reason to remain on the sidelines. This is good news for gold bulls. This week, gold prices crossed $1,300 an ounce. After being written off at the end of last year, the precious metal has made a strong comeback since the start of this year. The rally at the start of the year was sparked due to volatility in risk assets, which boosted gold’s safe haven appeal. But with the Fed factor back, expect further strengthening in gold prices. I am bullish on the SPDR Gold Trust (ETF) (NYSEARCA: GLD ), which is now up more than 21% for the year. The chart below shows GLD has broken through some key resistance levels. Click to enlarge Stockcharts.com. Importantly, GLD is seeing significant inflows. On Monday, GLD had net inflows $860 million, highlighting the bullish sentiment on gold. The table below from ETF.com shows GLD is at the top when it comes to fund inflows into ETF. This trend is likely to continue following today’s weak jobs report. Recently I covered Market Vectors Gold Miners (ETF) (NYSEARCA: GDX ), which is now up more than 84% for the year. I had noted in the article that the excellent run in GDX will continue based on the outlook for gold. That thesis has been strengthened further following the weak April jobs report. As I had highlighted in my GDX article, the ETF substantially underperforms gold when gold prices drop and vice versa. GDX’s gains have been four times those of GLD this year. Therefore, if prices continue to strengthen expect significant further upside in GDX. I am also bullish on Powershares DB US Dollar Index Bearish Fund (NYSEARCA: UDN ). The greenback strengthened significantly from mid-2014 onwards as it became clear that the Fed would start to tighten its monetary policy. The story has been different this year. Click to enlarge Google Finance. UDN has gained almost 5% this year but with a rate hike unlikely this year, I expect further gains. Bearish on SPY and IBB Finally, what does today’s weak jobs report mean for the SPDR S&P 500 ETF (NYSEARCA: SPY ). The S&P 500 has edged lower today but a weak jobs report, which leads to a delay in rate hike, is a positive for risk assets such as equities. But the weak earnings season suggests that the S&P 500 will remain under pressure, which is why I am bearish on the index. SPY, as the table below from ETF.com shows, has seen the highest redemption among ETFs. This trend could continue following the weak earnings. According to data from FactSet, the blended earnings decline for the S&P 500 in the ongoing earnings season (as on April 29, 2016) was 7.6%. While the Energy sector is to a great extent responsible for this steep drop, even after excluding the sector, the FactSet data shows 2.4% decline. I must add though that a weaker dollar will help Corporate America. However, the impact will not be felt in the near-term. The iShares NASDAQ Biotechnology Index (ETF) (NASDAQ: IBB ) has had another rough week. The fund dropped more than 5% for the week. IBB is in fact heading into bear market territory. Since April 25, it has fallen 13%. I discussed some of the factors in my article late last month that will keep pressure on IBB. One of the factors that I had mentioned was difficulty obtaining funding. In April, multiple biotech IPOs were withdrawn. This week we saw one more instance which highlights the fact that biotech companies are struggling to gain access to capital markets. Relypsa (NASDAQ: RLYP ), which has an approved product, obtained $150 million in debt financing. RLYP will be paying 11.50% in interest. Debt funding at such a high interest rate for a biotech company in early stages of commercialization is not good news. I expect difficult times ahead for the sector. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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