Drug ETFs Attractive Buys On Pullback
The market pullback was due to a combination of factors that ranged from the Ebola scare to high valuations to falling oil prices to geopolitical concerns.
The broad-based selling had an effect on every sector in the market including the drug stocks. The sector was trading at an all-time high with the S&P 500 in mid-September before the selling began.
Now that the dust is starting to settle, investors are able to look at buying opportunities in sectors that were brought down by market-wide selling.
The pharmaceutical/drug ETFs are now sitting on support levels that suggest the past rally should continue.
The Market Vectors Pharmaceuticals ETF (NYSE: PPH) tracks 27 of the largest publicly traded pharmaceutical companies across eight countries. The top weighted countries being the United States at 59 percent and Switzerland at 10 percent. The top individual holdings include Johnson & Johnson (NYSE: JNJ) at 11 percent, Novartis Ag (ADR) (NYSE: NVS) with a 9.9 percent holding and Pfizer Inc. (NYSE: PFE) at 7.4 percent. The $363-million ETF broke through its 200-day moving average and is attempting to hold support at the $58 area.
The ETF is up 20 percent over the last 12 months, and it pays a 2.0 percent dividend. The annual expense ratio is 0.35 percent.
The iShares Dow Jones US Pharm Indx (NYSE: IHE) has $729 million in assets and tracks 42 pharmaceutical companies listed in the U.S. The top individual holdings in the portfolio are JNJ at 9.6 percent, PFE at 8.1 percent and Merck & Co., Inc. (NYSE: MRK) coming in at 7.4 percent.
The ETF was able to hold its 200-day moving average at $130.75 during the pullback before rallying with the overall market. Over the last year, the ETF is up 26 percent. The expense ratio is 0.43 percent and it pays out a dividend of 1.0 percent.
The PowerShares Dynamic Pharmaceuticals(ETF) (NYSE: PJP) has $1.2 billion in assets and consists of 27 stocks with about 60 percent in the large-cap asset class and one-third in small-cap stocks. The top individual holdings include Auxilium Pharmaceuticals, Inc. (NASDAQ: AUXL) with a 5.3 percent holding, Bristol-Myers Squibb Co (NYSE: BMY) at 5.1 percent and Amgen, Inc. (NASDAQ: AMGN) making up 4.9 percent of the portfolio. The ETF was also able to hold the 200-day moving average at $59 before attracting some buyers. Over the last 12 months the ETF has been the best performer of the three with a gain of 31 percent.
The expense ratio is slightly higher at 0.58 percent and the dividend yield is the lowest at 0.40 percent.
While the first two ETFs are fairly similar with a heavy concentration on the larger stocks in the sector, PJP is more diverse with one-third of the allocation in the smaller names.
This diversity has helped PJP outperform its peers and make up for the higher expense ratio and lower dividend yield. From a technical perspective both PJP and IHE are the most attractive because of the fact they held their respective 200-day moving averages. When all is considered, PJP appears to be the best positioned for a continued uptrend in the stock market and drug sector.
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