The Zacks Analyst Blog Highlights: Actavis, Allergan, iShares U.S. Pharmaceuticals ETF, Market Vectors Pharmaceutical ETF and SPDR S&P Pharmaceuticals ETF

CHICAGO, Nov. 19, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Actavis (NYSE:ACT-Free Report), Allergan (NYSE:AGN-Free Report), iShares U.S. Pharmaceuticals ETF (AMEX:IHE-Free Report), Market Vectors Pharmaceutical ETF (AMEX:PPH-Free Report) and SPDR S&P Pharmaceuticals ETF (AMEX:XPH-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Tuesday's Analyst Blog:

Pharma ETFs in Focus on Allergan Takeover

The health care space is witnessing 2014 as another banner year thanks to encouraging industry trends, solid corporate earnings and huge levels of merger and acquisition activities. The sector is clearly leading the broad market rally and this trend is likely to continue to close out the year given another round of merger talk (read: Healthcare ETFs for your Portfolio's Wellness).

Generic and specialty drug maker Actavis (NYSE:ACT-Free Report) entered into a deal to acquire Botox-maker Allergan (NYSE:AGN-Free Report) for $66 billion or $219 per share. Under the terms of the deal, Actavis will pay $129.22 in cash and 0.3683 Actavis shares for each share of Allergan.

This is the latest acquisition in the pharmaceutical corner of the health care space which will allow Actavis to take advantage of the so-called 'tax inversion' by moving its headquarters offshore, which has low tax rates. The move also put an end to several months of hostile bids made by activist investor William Ackman and others to acquire the Botox-maker.

The combination will create a top 10 pharmaceutical company that will likely have market capitalization of $147 billion and generate $23 billion in annual revenue. The takeover will allow Actavis to gain some of Allergan's promising experimental eye treatments for macular degeneration and glaucoma (read: Pharma ETF Investing 101).

The acquisition, expected to be completed in the second quarter of 2015, has already been approved by the board of directors of both companies and is seeking approvals from shareholders and regulators. The transaction will result in double-digit earnings growth in the first 12 months and will generate annual synergies of at least $1.8 billion starting in 2016.

The stock market greeted the takeover deal of Allergan by Actavis with enthusiasm, pushing not only shares of AGN and ACT higher but also spreading bullishness into the entire healthcare sector. Both stocks jumped to an all-time high of $213.91 and $255.51, respectively, following the news. Allergan shares climbed as much as 7.7% on the day while Actavis shares gained close to 5% on elevated volumes.

ETFs in Focus

The news also led to a surge in the pharma corner of the broad health care ETFs having decent allocation to the in-focus firms, rising about 7% on the day. We have detailed these funds below and expect these to be in focus over the coming days given the M&A talks (see: all the Healthcare ETFs here).

Investors should note that these products have a decent Zacks ETF Rank of 3 or 'Hold' rating with a Medium risk outlook, suggesting that these might perform on par with the broad market over the one-year period and might benefit from this takeover deal in the short term given than the pharma industry currently has a solid Zacks Rank.

iShares U.S. Pharmaceuticals ETF (AMEX:IHE-Free Report)

This ETF tracks the Dow Jones U.S. Select Pharmaceuticals Index and holds 42 securities in its basket. Allergan and Actavis occupy the fifth and seventh positions, respectively, in the basket with at least 5% share each. The fund has a slight tilt toward the large cap stocks at 62%, followed by 28% in small caps and the rest in mid caps. The product has amassed $818.6 million in its asset base while volume is relatively light at about 32,000 shares a day on average. The fund charges 43 bps in fees per year from its investors.

Market Vectors Pharmaceutical ETF (AMEX:PPH-Free Report)

This product is less popular in the pharma corner of the broad health care space with AUM of $358.1 million. It tracks the Market Vectors US Listed Pharmaceutical 25 Index and charges 35 bps in fees and expenses. Volume is decent as it exchanges around 93,000 shares in hand per day. The fund holds 26 stocks with Actavis taking the tenth spot in its basket with 4.58% allocation and is a large cap centric fund (read: Big Pharma Solid Q3 Earnings Put These ETFs in Focus).

SPDR S&P Pharmaceuticals ETF (AMEX:XPH-Free Report)

This fund follows the S&P Pharmaceuticals Select Industry Index and has AUM of over $1 billion. It trades in moderate volume of around 78,000 shares a day and charges just 35 bps in fees a year. Holding 36 securities, Allergan makes up for 3.72% share and represents the sixth holding in the basket. The fund is diversified across various market cap levels with 47% in small caps, 41% in large cap and the rest in mid caps.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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