by Will Ashworth | May 14, 2012 12:58 pm
The week of May 7-11 will definitely be remembered as the week in which Jamie Dimon coughed up a $2 billion hairball.
The CEO of JPMorgan Chase (NYSE:JPM[1]) spent the weekend doing damage control[2]. Chief Investment Officer Ina Drew has already “retired,” and two other executives are expected to lose their jobs as well.
The whole mess should make markets extra volatile in the days ahead. For those willing to wade into the unknown, I’ll provide ETF alternatives for stock recommendations made last week by InvestorPlace contributors.
After the JP Morgan disaster, I can’t imagine anyone wanting to bet on financial services. Nonetheless, for those capable of ignoring the debacle that is the U.S. banking system, Philip van Doorn believes Capital One (NYSE:COF[3]) is the stock to buy. With the exception of Bank of America (NYSE:BAC[4]), Capital One’s stock has outperformed the big banks in 2012[5].
The problem with an ETF alternative is that JPMorgan Chase is a top holding of most financially focused funds. However, there’s usually enough diversification to soften the blow of any one company’s bad news.
The fund of choice in this situation is the PowerShares KBW Bank Portfolio (NYSE:KBWB[6]), a 24-stock fund with Capital One at a current weighting of 4.99%. Because this is a float-adjusted, modified-market-capitalization-weighted index, JPMorgan Chase is only the third-largest holding, at 7.51% as of Friday’s close. Year-to-date, the fund is up 18.6%, more than double the S&P 500.
On Tuesday, Marc Bastow proposed that investors replace their consumer-staples buy-and-hold portfolio with a technology buy-and-hold portfolio[7] that includes Apple (NASDAQ:AAPL[8]), Cisco (NASDAQ:CSCO[9]), Intel (NASDAQ:INTC[10]), Microsoft (NASDAQ:MSFT[11]) and Oracle (NASDAQ:ORCL[12]).
Bastow believes all five represent good dividend plays with future growth potential. You can argue all you want about the attractiveness of each company’s dividend, but you can’t argue about their ability to generate excess cash flow. Any ETF alternative to capture the New Age Fab Five should probably have Apple at the top of its holdings. Of these five tech stocks, it has the most upside potential at this point.
In addition, I’d prefer a smaller number of holdings to better emulate Bastow’s select group. The fund that best meets this criterion is the PowerShares QQQ (NASDAQ:QQQ[13]), which has Apple as its largest holding, at 18.16%, with all four of the remaining companies in the top 10 and a total of just 100 stocks. And with an expense ration of 0.20%, QQQ couldn’t be a more reasonably priced way to own Bastow’s buy-and-hold portfolio.
Lawrence Meyers made a compelling case[14] last Wednesday for owning Icahn Enterprises (NASDAQ:IP[15]), the holding company of vulture capitalist Carl Icahn, who owns 80% of the stock. Icahn’s eclectic group of companies includes players in casinos, auto parts, scrap metals, real and estate and consumer products. The key to Icahn’s success is buying assets at bargain prices and then selling them for vastly inflated numbers — and he’s very good at what he does.
Unfortunately, I could find no ETF that provides a suitable alternative to Icahn’s stock. However, I was able to find a very intriguing mutual fund that does the same thing. It’s called the Kinetics Paradigm No Load (MUTF:WWNPX[16]). It’s 12 years old, has assets of $871 million, approximately 69 holdings, a 46% turnover rate and an annual expense ratio of 1.64%.
Before you choke on the size of its annual fee, remember that it has outperformed the S&P by a significant amount in 10 of the last 12 years[17]. In addition to having Icahn Enterprises in its top 10 holdings, the fund owns big positions in Leucadia National (NYSE:LUK[18]), Brookfield Asset Management (NYSE:BAM[19]) and Liberty Media (NASDAQ:LMCA[20]). All four are proven allocators of capital. I’m not a fan of mutual funds, but if I were to spring for one, this and a handful of others would qualify.
Walt Disney (NYSE:DIS[21]) announced better-than-expected results on May 9. The next day, Jonathan Berr suggested three reasons to own its stock[22].
At the top of his list: The Avengers is on target to break Avatar‘s box-office record of $2.78 billion. Merchandising revenues will also be huge for the film. In addition, Disney’s theme parks business, which was thought to be going through a soft patch, made $222 million in the quarter. Just last year it was experiencing all sorts of problems that now seem to be past.
To take advantage of Disney’s move upwards, I’m going to recommend the PowerShares Buyback Achievers Portfolio (NYSE:PKW[23]), which replicates the returns of the Share BuyBack Achievers index and contains only those companies repurchasing at least 5% of their stock in the previous 12 months. At 0.70%, its expense ratio isn’t cheap. However, over the past five years, through March 31, its 4.35% annualized return is 234 basis points higher than the S&P 500. PKW a great way to play Disney and achieve significant diversification.
What better way to close out the week than with a discussion about pizza? Lawrence Meyers highlighted three pizza stocks worth owning,[24] including Domino’s Pizza (NYSE:DPZ[25]), Papa John’s International (NASDAQ:PZZA[26]) and Yum! Brands (NYSE:YUM[27]). While Meyers believes all three tilt toward expensive when it comes to their stock prices, he still feels they’re worth owning.
There’s no pizza ETF, but there is the PowerShares Dynamic Leisure and Entertainment Portfolio (NYSE:PEJ[28]), which owns all three of these stocks, with Yum! Brands and Papa John’s in the top 10. In addition, if you don’t like the buyback fund from the previous paragraph, you can get Disney here as well, killing two birds with one stone — and it’s slightly cheaper, at 0.63%. Bon appetit!
As of this writing, Will Ashworth did not own a position in any of the stocks named here.
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