This article was originally published on ETFTrends.com.
Pharmaceutical stocks and sector-related exchange traded funds have enjoyed a great summer and the rally may continue to have legs.
Over the past three months, the PowerShares Dynamic Pharmaceuticals Portfolio (PJP) gained 11.4%, SPDR Pharmaceuticals ETF (XPH) increased 18.0% and iShares U.S. Pharmaceuticals ETF (IHE) advanced 12.8%. Meanwhile, the broader iShares Nasdaq Biotechnology ETF (NASDAQGM: IBB) rose 10.6%.
There were no clear catalysts to explain the rally as we did not witness any memorable earnings beats, new clinical trials or large-scale deals, the Wall Street Journal reports. However, the lack of a clear instigating factor does not mean the sector is due to retreat.
Pharmaceutical sector valuations remain relatively attractive even after the recent run up. For instance, PJP shows a price-to-earnings ratio of 12.8, XPH trades at a 12.4 P/E and IHE has a 14.0 P/E. In contrast, the S&P 500 is hovering around a 17.1 P/E.
There aren't any looming negatives that would diminish the earnings outlook either.
Pharmaceuticals experienced a bump earlier in the year as the Trump administration rolled out plans to cut down drug prices. The administration has focused primarily on middlemen like pharmacy-benefit managers instead of manufacturers. The new policies have a more subtle affect on the overall industry as it may affect sales of certain blockbuster drugs but damage the share prices of smaller companies.
Overall, concerns of broad price controls, which dragged on the whole sector ahead of the 2016 elections, have more or less dissipated, and the upcoming midterm elections has not stirred up the pot either.
Given the low valuations, ongoing broad market support and diminished political risks, pharma stocks may continue to maintain their forward momentum.
For more information on the pharma sector, visit our pharmaceuticals category.
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