The Zacks Analyst Blog Highlights:SPDR S&P Pharmaceuticals ETF, Health Care Select Sector SPDR, Apple, Fossil and Movado Group
CHICAGO, June 23, 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 SPDR S&P Pharmaceuticals ETF (AMEX:XPH-Free Report), Health Care Select Sector SPDR (AMEX:XLV-Free Report), Apple (Nasdaq:AAPL-Free Report), Fossil (Nasdaq:FOSL-Free Report) and Movado Group (NYSE:MOV-Free Report).
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Here are highlights from Friday's Analyst Blog:
XPH Crushing the Pharma ETFs Competition
The pharma corner of the broader healthcare space is one of the most happening sectors this year given the rising wave of merger and acquisition (M&A) activities, which lifted many drug stocks higher (read: Pharma M&A Frenzy Pushing These ETFs Higher).
The industry, which was struggling with genericization over the past few years, is now on the verge of recovery and showing substantial improvement. This is because an aging population, higher rates of chronic diseases, promising new drugs, cost-cutting efforts, increased pipeline visibility, growing demand in emerging markets and the Affordable Care Act (often known as Obamacare) are propelling growth in the sector.
This trend is likely to continue in the coming months as pharma has one of the best ranks for any industry as per the Zacks Industry Rank at the time of writing. Three of the four Zacks industries that are classified under pharma have a Zacks Rank in the top 37%. Further, impending M&A activities would continue to boost this corner of the investing world.
Moreover, the sector might be a good defensive play to withstand the current market turmoil arising from uneven U.S. economic growth, slowdown in Chinese economy, rising tension in Ukraine and instability in Iraq (read: A Comprehensive Guide to Pharma ETFs).
Given these positive trends, a good way to seek entry into the pharma world is by tilting toward companies in this segment. While there are a number of ways to invest in this surging corner of the market, SPDR S&P Pharmaceuticals ETF (AMEX:XPH-Free Report) could be an excellent play.
XPH in Focus
The fund tracks the S&P Pharmaceuticals Select Industry Index, holding 34 securities in its basket. It is well spread across each security as each holds less than 4.7% of the total assets. Questcor Pharmaceuticals, Allergan and Hospira take the top three positions in the basket with a combined 12.8% share. This suggests a low concentration risk of 8.37% as per fidelity.com.
Though the product has a slight tilt toward large caps at 43%, it provides a nice mix of mid and small cap securities as well. Additionally, growth stocks dominate the fund's return at 64%, which makes it a great strategy in a trending market (i.e. a market characterized by a prolonged up or downtrend). This is because stocks in the growth ETF portfolio harness their earnings momentum to create a positive bias in the market, resulting in rocketing share prices (read: 2 Top Ranked Large Cap Growth ETFs in Focus).
However, growth stocks tend to be more volatile compared to value counterparts, suggesting some degree of risk as indicated by its annualized standard deviation of 16.12%. XPH is often considered a high momentum (the change in the fund's price over the past three months) ETF with value closer to 103, suggesting that it will continue to move higher relative to its counterparts.
The fund has amassed $920.2 million in its asset base while trades in average daily volume of 113,000 shares per day. This suggests some additional cost for this product in the form of relatively tight bid/ask spread beyond the expense ratio of 0.35%.
Moreover, the performance of the fund has been quite impressive, delivering a robust return of more than 118% over the trailing three-year period, 44.6% over the one-year and 15.9% year-to-date. In fact, XPH is beating the broad sector fund – Health Care Select Sector SPDR (AMEX:XLV-Free Report) – by a wide margin this year and this trend is likely to continue given that the fund has a Zacks ETF Rank of 1 or 'Strong Buy' rating with a 'Medium' risk outlook (see: all the healthcare ETFs).
Bottom Line
This ETF is considered a solid pick relative to other options in the space given its strong fundamentals and the growing pharma space. Pharma will continue to grow no matter what happens, especially given the demographic shift in the U.S. and the insatiable demand for new treatments and drugs for many illnesses.
iWatch Release News Puts Apple Stock in Focus
Investors who have been clamoring for the next Apple (Nasdaq:AAPL-Free Report) mega-product may not have to wait much longer after all. The company, via a Reuters report on CNBC, looks to be launching a watch—widely dubbed 'iWatch'-- at some point in October.
Taiwan's Quanta Computer will start manufacturing of the long-awaited device in July and the company will account for the majority of the watch's final assembly as well. Sources cited in the article claim that Apple's watch will have a 2.5 inch screen that has both a touch interface and wireless charging abilities.
The real shocker is that the source said that Apple expects shipments of 50 million units within the first year of the product's release, though that is obviously subject to change (since this article was published new estimates have been put out in the 10-15 million unit range). This is especially true given that the company sold 71.1 million iPads in the last fiscal year, suggesting that these initial predictions for the watch are extremely optimistic to say the least.
Apple Stock in Focus
The news will take some heat off of Apple for the time being though, as many investors were starting to wonder when the next new product would come out from the tech giant. An Apple produced TV was rumored for quite some time, but appears as if Apple is focused on the wrist for the time being.
This shift to the watch may also go nicely with Apple's recent focus on fitness and related apps. A watch, should it be able to keep track of various health statistics, would be a nice complement in this burgeoning slice of the market.
Additionally, the watch shows that Apple is finally moving beyond various financial engineering tactics—such as share buybacks and stock splits—and is getting back to its roots in order to grow its share price once more. While investors don't really anticipate these buybacks or dividends to slowdown, it is nice to see that innovation is back in focus.
Apple Estimates
This innovation tilt is important right now because Apple's earnings estimate revisions have been in rocky territory lately. Yes, many earnings estimates have been going higher over the past sixty days, but more recent estimates, such as those in the past week, have been trending lower, at least for the current year time frame.
As a result of this more mixed trend, Apple currently has a Zacks Rank #3 (hold) though is still poised to grow earnings by over 10% this year (year-over-year). it will be interesting to see if this pattern shifts as more details are revealed about the iWatch—such as the price point—and how many the company is realistically expecting to sell this year.
Other Stocks to Watch
While this is big news for Apple, a variety of other stocks could also be impacted by this news as well. Specifically companies in the watch making space may be looking at this recent event with worry.
After all, stocks in this space have survived the initial 'smart watch' scare pretty much unscathed, but the looming presence of Apple could change all that. This is especially true if millions of units are projected to be sold, heating up competition for consumers' wrists and putting the pressure on watch stocks.
Companies in this space include Fossil (Nasdaq:FOSL-Free Report) and Movado Group (NYSE:MOV-Free Report), two stocks that have seen pretty similar trending over the past two years. Both of these stocks have surged in the trailing two year time frame- up at least 42%-- but have really struggled year-to-date.
Investors in either one need to pay close attention to the iWatch news and see how their stocks react to the developments. A good barometer here will be the earnings estimate revisions should analysts turn bearish on the prospects of either ahead of Apple's foray into this already competitive space.
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