Make Money in These Growing Pharma Stocks the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some pharmaceutical stocks to your portfolio, the SPDR S&P Pharmaceuticals ETF (NYSEMKT: XPH  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The SPDR ETF's expense ratio -- its annual fee -- is a relatively low 0.35%.

This ETF has trounced the world markets over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why pharmaceuticals?
A simple answer: demographics. As our global population grows and ages, and lives longer, the demand for health-care products and services seems quite likely to grow. In addition, as developing nations develop, their populations will have more money to spend on health care.

More than a handful of pharmaceutical companies had strong performances over the past year. Biotech company Santarus (NASDAQ: SNTS  ) roughly tripled in value, with an ulcerative colitis drug, Uceris, recently approved. The company posted first-quarter results that featured revenue up 73% and earnings strongly positive. Gastrointestinal disorders drug Zegerid and type 2 diabetes drug Glumetza were big performers for Santarus. Things are looking good for the company, but many think the stock is overvalued.

Pacira Pharmaceuticals (NASDAQ: PCRX  ) surged 81%, and one of its directors might be thinking that it's overvalued, too, as he sold more than $2 million worth of shares recently. (He might simply have been generating cash for some other purpose, however. While insider buying is a bullish sign, insider selling can mean many things.) Several other insiders have also sold shares, though not quite so many. The company has a pain management treatment, Exparel, which is being studied to treat additional conditions, with promising results so far. Pacira's last quarter featured growing revenue but disappointing earnings. The stock has been downgraded by Wall Street, due in part to its debt, which is coupled with net losses and negative free cash flow.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Questcor Pharmaceuticals (NASDAQ: QCOR  ) , for example, sank 13%. It's largely known for its multiple sclerosis (MS) drug, Acthar, that has sold well in the past and is being evaluated for many more indications. Questcor's management is extremely well regarded and its dividend, which yields 2.2%, was hiked by 25% earlier this year. The stock is heavily shorted, but some see it as a bargain. Questcor has bought the not-yet-approved-in-the-U.S. immune drug Synacthen from Novartis.

Zoetis (NYSE: ZTS  ) , meanwhile, is trading near the lower end of its 52-week range. It was recently spun off by Pfizer and is the world's largest animal health company and a new addition to the S&P 500. Its dividend is on the puny side at the moment, but with a low payout ratio, it has plenty of room to grow.

The big picture
Demand for pharmaceuticals isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

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