Hit ETFs & Stocks from the Top Sector of February

The healthcare sector, which was the victim of the twin attacks of higher drug pricing and increased regulatory scrutiny, made a strong comeback last month. This is especially true given that Health Care Select Sector SPDR Fund XLV returned 6.3% compared with gains of 3.9% for the broad market fund SPY.   

Inside The Surge

Though a slew of Trump’s statements and the fate of Obamacare spooked the sector to start the year, a couple of recent actions spurred bullishness, pushing the stocks higher. In particular, the President promised to reduce federal regulations by 75–80% and streamline the Food & Drug Administration (FDA) approval process. This would potentially make it easier for the biotech and pharma companies to bring new products to the market. Trump’s proposed tax reforms and cash repatriation policy are also supporting the rally.

Additionally, the sector has impressed investors with solid Q4 earnings results. Total earnings for 89.2% of the sector’s total market capitalization are up 4.6% on revenue growth of 7.1%, with earnings and revenue beat ratios of 80% and 55%, respectively. Healthcare is the topmost sector that surprised investors the most on earnings, similar to aerospace and industrial products, as per the Earnings Trends (read: Biotech ETFs Powered by Q4 Earnings).

The sector is clearly benefiting from encouraging trends including hopes of increased M&A activity, an accelerated pace of innovation, promising drug launches, growing importance of biosimilars, cost-cutting efforts, an aging population, expanding insurance coverage, growing middle class, an insatiable demand for new drugs, and ever-increasing health care spending.

Further, the steep decline in the stock prices over the past one year has made healthcare stocks cheaper and tempting for investors. Notably, XLV currently has a P/E ratio of 16.16 versus 18.36 for SPY. Added to this strength is its non-cyclical nature, which provides a defensive tilt to the portfolio. Amid uncertainty over Trump’s policy implementation and fears of political instability, defensive stocks could be compelling choices for investors.

While most of the ETFs and stocks crushed XLV last month, we have highlighted four winners from each corner of the space that will continue their outperformance in the coming months (see: all the Healthcare ETFs here):

Hit ETFs

Principal Healthcare Innovators Index ETF BTEC

This fund provides exposure to stocks that are early stage healthcare companies by tracking the Nasdaq Healthcare Innovators Index. Holding 153 stocks in its basket, it is widely spread out across components with each accounting for less than 4.4% of assets. It is slightly tilted toward small caps at 63% followed by mid caps (27%) and the rest in large caps. The product has accumulated $6.8 million in its asset base since its inception seven month ago and trades in a meager average daily volume of under 1,000 shares. It charges 42 bps in annual fees and surged 11.7% in February.  

ALPS Medical Breakthroughs ETF SBIO

This fund targets companies with one or more drugs in Phase II or Phase III FDA clinical trials by tracking the Poliwogg Medical Breakthroughs Index. It is a small cap centric fund, having amassed $99.9 million in its asset base. The product holds 87 stocks in its basket with a well-diversified portfolio as each security holds less than 5.2% of assets. The product charges 50 bps in fees per year from investors and trades in a moderate average daily volume of about 52,000 shares. It gained 11.5% last month and has a Zacks ETF Rank of 3 or ‘Hold’ rating (read: What Lies Ahead for Biotech ETFs in Trump Era?)

BioShares Biotechnology Clinical Trials Fund BBC

This fund has a novel approach to biotechnology investing providing exposure to companies that are in the clinical trial stage. This can easily be done by tracking the LifeSci Biotechnology Clinical Trials Index. Holding 71 stocks in its basket, it is widely spread out across various components with none holding more than 2.53% share. BBC is also a small cap centric fund, having amassed $22.2 million in its asset base. It charges 85 bps in fees per year from investors and trades in light average daily volume of around 12,000 shares. The product was up 10.8% and has a Zacks ETF Rank of 3.

PowerShares Dynamic Pharmaceuticals Fund PJP

This product offers exposure to the companies engaged in the research, development, manufacture, sale or distribution of pharmaceuticals and all types of drugs. It follows the Dynamic Pharmaceuticals Intellidex Index, charging investors 57 bps in annual fees. The ETF holds 21 stocks in its basket with none accounting for more than 6.01% of the portfolio. It has AUM of about $840.5 million and sees healthy volume of around 150,000 shares a day. The fund gained about 8.7% last month and has a Zacks ETF Rank of 3 (read: Q4 Earnings Faring Well for Pharma ETFs).

Hit Stocks

Community Health Systems Inc. CYH

Based in Tennessee, Community Health is a leading provider of non-urban acute healthcare services. The company came up with huge earnings beat of 283.33% for the recently reported quarter. Its earnings are expected to grow 25.2% for this year, higher than the average industry growth of 14.5%. The stock climbed 52.3% last month and has a Zacks Rank #3 with a VGM Style Score of A and market cap of $1.11 billion.

OraSure Technologies Inc. OSUR

Based in Pennsylvania, OraSure is the market leader for oral fluid diagnostics. The stock saw solid rising earnings estimate of 16 cents over the past 30 days for this year with an expected earnings growth of 1.43%. Shares of OUSR were up 27.1% last month. The stock has a Zacks Rank #2 (Buy) with a VGM Style Score of B and market cap of $627.7 million (read: Surging Earnings Estimates Signal Good News for OraSure).

ZELTIQ Aesthetics Inc. ZLTQ

Based in California, ZELTIQ Aesthetics is a medical technology company engaged in designing, development and commercialization of non-invasive procedures for the reduction of unwanted fat tissue. It has a whopping expected earnings growth of 460.53% for this year versus average industry growth of 11.36%. The stock gained 24.8% last month and has a Zacks Rank #3 with a VGM Style Score of B and market cap of $2.23 billion.

Masimo Corporation MASI

Based in California, Masimo is engaged in the developing, manufacturing, and marketing of noninvasive monitoring technologies worldwide. The stock saw solid earnings estimate revision of 13 cents over the past 30 days for this year with an expected growth rate of 12.01%. The stock gained 22.8% in February and has a Zacks Rank #2 with a VGM Style Score of A and market cap of $4.56 billion.

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SPDR-SP 500 TR (SPY): ETF Research Reports
 
Masimo Corporation (MASI): Free Stock Analysis Report
 
OraSure Technologies, Inc. (OSUR): Free Stock Analysis Report
 
Community Health Systems, Inc. (CYH): Free Stock Analysis Report
 
SPDR-HLTH CR (XLV): ETF Research Reports
 
ZELTIQ Aesthetics, Inc. (ZLTQ): Free Stock Analysis Report
 
PWRSH-DYN PHARM (PJP): ETF Research Reports
 
BIOSH-BIO CLNCL (BBC): ETF Research Reports
 
PRIN-HLTHCR INV (BTEC): ETF Research Reports
 
ALPS-MED BRKTH (SBIO): ETF Research Reports
 
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