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JNJ Beats, Ups View: Healthcare ETFs to Buy

Sweta Killa

Johnson & Johnson JNJ set the ball rolling for pharma earnings when it reported second-quarter results on Oct 15, before the opening bell. The world's biggest healthcare products maker continued its long streak of earnings beat and outpaced revenue estimates. It also raised its guidance for the full year.

Earnings per share came in at $2.12, 12 cents ahead of the Zacks Consensus Estimate and 3.4% higher than the year-ago quarter. Revenues grew 1.9% year over year to $20.7 billion and edged past the Zacks Consensus Estimate of $20.1 billion. The stronger performance was driven by higher demand for its cancer drug Darzalex and Imbruvica as well as psoriasis drug Stelara.

For 2019, Johnson & Johnson raised its sales forecast from $81.8-$82.3 billion to $80.8-$81.6 billion, which represents 0.2%-0.7% year-over-year growth, on robust demand for its cancer drugs. It also upped its earnings per share outlook to $8.62-$8.67 from $8.53-$8.63, representing year-over-year growth of 5.4-6% (read: Stocks & ETF to Invest in Healthcare Robotics and Innovation).

The strong results pushed shares of JNJ up by 1.6% at the close. Currently, the stock has a Zacks Rank #4 (Sell) and VGM Score of B. However, Johnson & Johnson belongs to a top-ranked Zacks industry Rank (top 39%), 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 45 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 top spot, accounting for 23% share. The product has $321.3 million in AUM and charges 42 bps in fees and expenses. Volume is lower as it exchanges about 16,000 shares a day. The fund has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

iShares Evolved U.S. Innovative Healthcare ETF IEIH

This actively managed ETF employs data science techniques to identify companies with exposure to the innovative healthcare sector. Holding 220 stocks in its basket, JNJ is the top firm with 10.8% allocation. The product has accumulated $4.9 million in its asset base and trades in a meager volume of 2,000 shares per day on average. It charges 18 bps in annual fees (read: Amgen to Buy Celgene's Otezla: 5 ETF Drugs).

Health Care Select Sector SPDR Fund XLV

The most-popular healthcare ETF, XLV follows the Health Care Select Sector Index. This fund manages nearly $17 billion in its asset base and trades in heavy volume of around 11 million shares. Expense ratio comes in at 0.13%. In total, the fund holds 61 securities in its basket, with JNJ taking the top spot at 10.2% of the assets. Pharma accounts for 31.9% share from a sector look, while healthcare equipment and supplies, healthcare providers and services, and biotech have a double-digit exposure each. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Bet on Top-Notch Sector ETFs & Stocks to Sparkle Q4).

iShares U.S. Healthcare ETF IYH

This fund offers exposure to 122 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 healthcare equipment (24.7%) and biotech (17.9%). The product has amassed nearly $2 billion in its asset base and charges 43 bps in annual fees. It trades in a good volume of around 74,000 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 389 stocks in its basket. Of these, Johnson & Johnson occupies the top position with 8.7% allocation. Pharma takes the largest share at 28.5%, while healthcare equipment and biotech round off the top three spots. VHT is also one of the popular and liquid ETFs with AUM of $8.6 billion and average daily volume of about 203,000 shares. It charges 10 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.

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