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Healthcare ETFs in Focus on JNJ's Q2 Earnings Beat

Sweta Killa
Here are some of the highlights of J&J's (JNJ) second-quarter earnings call.

Johnson & Johnson JNJ set the ball rolling for pharma earnings when it reported second-quarter results on Jul 16, before the opening bell. The world's biggest health care products maker continued its long streak of earnings beat and also outpaced revenue estimates. It also raised its guidance for full-year sales growth.

Earnings per share came in at $2.58, 16 cents ahead of the Zacks Consensus Estimate and 22.9% higher than the year-ago quarter. Revenues fell 1.3% year over year to $20.56 billion but edged past the Zacks Consensus Estimate of $20.32 billion (read: ETFs to Shine as Trump Tosses Drug Rebate Curb Plan).

For 2019, Johnson & Johnson raised its sales forecast to $80.8-$81.6 billion from $80.4-$81.2 billion on robust demand for its cancer drugs. It reaffirmed its earnings per share guidance of $8.53-$8.63. However, the company warned competition from generics and biosimilars that could impact its third-quarter results. This sent shares of JNJ down 1.6% despite the strong results.

Currently, the stock has a Zacks Rank #2 (Buy) and a VGM Score of A. Additionally, Johnson & Johnson belongs to a top-ranked Zacks industry Rank (top 11%), suggesting smooth trading in the days ahead.

ETFs in Focus

Given this, investors should closely watch the movement of the stock and keep a close eye on ETFs having double-digit allocation to this diversified drug maker. Below we have highlighted them (see: all the Healthcare ETFs here).

iShares U.S. Pharmaceuticals ETF IHE

This ETF provides exposure to 43 companies that manufacture prescription or over-the-counter drugs or vaccines by tracking the Dow Jones U.S. Select Pharmaceuticals Index. Of these, Johnson and Johnson takes the second spot, accounting for 21.2% share. The product has $295 million in AUM and charges 43 bps in fees and expenses. Volume is lower as it exchanges about 11,000 shares a day. The fund has a Zacks ETF Rank #3 (Hold) with a High risk outlook (read: AbbVie to Buy Allergan: Prescribed ETFs).

iShares Evolved U.S. Innovative Healthcare ETF IEIH

This actively managed ETF employs data science techniques to identify companies with exposure to the innovative health care sector. Holding 214 stocks in its basket, JNJ is the top firm with 11.2% allocation. The product has accumulated $5 million in its asset base and trades in a meager volume of 3,000 shares per day on average. It charges 18 bps in annual fees.

Health Care Select Sector SPDR Fund XLV

The most popular health care ETF, XLV follows the Health Care Select Sector Index. This fund manages nearly $17.8 billion in its asset base and trades in heavy volume of around 11.2 million shares. Expense ratio comes in at 0.13%. In total, the fund holds 62 securities in its basket, with JNJ taking the top spot at 10.3% of the assets. Pharma accounts for 31.6% share from a sector look, while health care equipment and supplies, health care providers and services, and biotech have double-digit exposure each. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: 4 ETFs to Bet on Global Aging Population).

iShares U.S. Healthcare ETF IYH

This fund offers exposure to 130 securities by tracking the Dow Jones U.S. Health Care Index. Here again, Johnson & Johnson dominates the fund’s returns with 9.5% of the total assets. In terms of industrial exposure, pharma takes the top spot at 30.2%, followed by health care equipment (23.7%) and biotech (17.3%). The product has amassed nearly $2.2 billion in its asset base and charges 43 bps in annual fees. It trades in a good volume of around 104,000 shares a day and has a Zacks ETF Rank #2 with a Medium risk outlook.

Vanguard Health Care ETF VHT

This ETF tracks the MSCI US Investable Market Health Care 25/50 Index and holds 391 stocks in its basket. Of these, Johnson & Johnson occupies the top position with 9% allocation. Pharma takes the largest share at 29.1%, while health care equipment and biotech round off the top three spots. VHT is also one of the popular and liquid ETFs with AUM of $9.2 billion and average daily volume of about 252,000 shares. It charges 10 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.

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