ETF Alternatives for Last Week’s Hot Stocks

by Will Ashworth | May 29, 2012 11:46 am

Investors breathed a sigh a relief headed into the Memorial Day weekend as the S&P 500 Index gained 1.7%, its first winning week in a month. Whether the good mood continues will depend on what happens in the coming days in Europe.

As usual, InvestorPlace contributors were hard at work coming up with stock recommendations for you. Today I’ll provide some ETF alternatives.

Kicking off the week, Charles Sizemore was talking deluxe discounts[1]. He believes the China slowdown and euro crisis have turned luxury stocks into bargains. Among the names Sizemore mentions are LVMH (PINK:LVMUY[2]), Daimler (PINK:DDAIF[3]), Beam (NYSE:BEAM[4]) and Diageo (NYSE:DEO[5]). Guggenheim used to have an ETF that followed global luxury stocks. Unfortunately, it was wound up in September 2010.

One of the best-performing funds I’ve seen over the past five years isn’t an ETF but rather a “ready-to-go folio” offered by Folio Investing, a Washington, D.C., company that provides a low-cost way to build diversified stock portfolios[6]. This one is up 18.26% annually since its inception in June 2003. It holds Diageo, Beam and 16 other wine, beer and spirits makers. To get all four of the stocks above, your best bet is to combine a consumer discretionary ETF, such as the Consumer Discretionary Select Sector SPDR (NYSE:XLY[7]), with a consumer staples ETF, such as the Consumer Staples Select Sector SPDR (NYSE:XLP[8]).

On Tuesday Louis Navellier suggested that Lowe’s (NYSE:LOW[9]) top- and bottom-line beat of its first-quarter earnings estimates is evidence that the home-improvement retailer is worth considering[10], especially since it has a history of earnings surprises and its stock is at a four-month low.

Anyone who does their own home repairs knows that a battle that rages between Lowe’s and Home Depot (NYSE:HD[11]). The best ETF to own in this situation is the PowerShares Dynamic Building & Construction Portfolio (NYSE:PKB[12]), which owns both Lowe’s and Home Depot in its top 10 holdings, along with Tractor Supply (NASDAQ:TSCO[13]) and Mohawk Industries (NYSE:MHK[14]), two companies I wouldn’t hesitate to own. The expense ratio’s a tad rich at 0.63%, but that’s generally the going rate for a specialty fund.

Midweek, Lawrence Meyers provided readers with a counterargument to those bashing J.C. Penney‘s (NYSE:JCP[15]) quarterly report and CEO Ron Johnson’s turnaround efforts[16]. Meyers is correct to point out that turnarounds take a long time to come to fruition and Johnson is less than a year into the job. However, as I pointed out in April, Johnson is being paid a king’s ransom[17], so no one should feel sorry for him.

I’m on the fence about JCP because it’s quite possible it could turn into another Sears Holdings (NASDAQ:SHLD[18]). For those who agree with Meyers, I’d go with the Market Vectors Retail ETF (NYSE:RTH[19]), which has the same 0.35% expense ratio as the SPDR S&P Retail ETF (NYSE:XRT[20]) butis a top 10 holding¬†with moretraditional retail. At a weighting of 1%, J.C. Penney will have almost no effect either way.

On the penultimate day of the last work week, James Brumley was singing the praises of two regional banks and two savings-and-loan institutions[21]. His argument boils down to the fact that smaller banks seem to be chipping away at the “too big to fail” banks. Finding an ETF that holds all four stocks on Brumley’s list is near-impossible, but the iShares Dow Jones U.S. Regional Banks Index Fund (NYSE:IAT[22]) owns both Cullen/Frost Bankers (NYSE:CFR[23]), a regional bank, and Provident Financial Services (NYSE:PFS[24]), a savings-and-loan, amongst its 62 holdings.

If you want to pay less than 0.48%, you can also buy the Vanguard Financials ETF (NYSE:VFH[25]), which charges just 0.23% and owns all four, albeit at much smaller weightings since it has 504 stocks in its portfolio.

Closing out the week, Susan Aluise recommended three hospital stocks[26]. These three are cutting costs and becoming more efficient today so that whatever happens tomorrow, they’ll be able to prosper. My favorite of her three picks is LifePoint Hospitals (NASDAQ:LPNT[27]), which operates 54 hospitals in rural areas and is growing earnings and revenues.

People living in rural parts of the country always seem to get the short end of the stick, so it’s nice to see a business doing some good and making money at the same time. The best option here is to buy the First Trust Health Care AlphaDEX Fund (NYSE:FXH[28]), which owns 71 stocks, including LifePoint at 2.33% — a top 10 holding. At 0.70%, it’s expensive, but Morningstar gives it a five-star rating over the past three years, making the higher fee a little more palatable.

As of this writing, Will Ashworth did not own a position in any of the stocks named here. 

Endnotes:
  1. Charles Sizemore was talking deluxe discounts: http://investorplace.com/2012/05/deluxe-discounts-forged-in-the-downturn-beam-lvmuy-deo-ddaif/2/
  2. LVMUY: http://studio-5.financialcontent.com/investplace/quote?Symbol=LVMUY
  3. DDAIF: http://studio-5.financialcontent.com/investplace/quote?Symbol=DDAIF
  4. BEAM: http://studio-5.financialcontent.com/investplace/quote?Symbol=BEAM
  5. DEO: http://studio-5.financialcontent.com/investplace/quote?Symbol=DEO
  6. low-cost way to build diversified stock portfolios: https://www.folioinvesting.com/rtg/folio.jsp?name=Wine%20Beer%20and%20Spirits
  7. XLY: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLY
  8. XLP: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLP
  9. LOW: http://studio-5.financialcontent.com/investplace/quote?Symbol=LOW
  10. the home-improvement retailer is worth considering: http://investorplace.com/2012/05/lowes-remains-on-a-solid-buy-foundation-low-hd-shld/
  11. HD: http://studio-5.financialcontent.com/investplace/quote?Symbol=HD
  12. PKB: http://studio-5.financialcontent.com/investplace/quote?Symbol=PKB
  13. TSCO: http://studio-5.financialcontent.com/investplace/quote?Symbol=TSCO
  14. MHK: http://studio-5.financialcontent.com/investplace/quote?Symbol=MHK
  15. JCP: http://studio-5.financialcontent.com/investplace/quote?Symbol=JCP
  16. CEO Ron Johnson’s turnaround efforts: http://investorplace.com/2012/05/hold-your-horses-on-the-jc-penney-pounding
  17. Johnson is being paid a king’s ransom: http://investorplace.com/2012/04/ceos-made-out-like-bandits-in-2011
  18. SHLD: http://studio-5.financialcontent.com/investplace/quote?Symbol=SHLD
  19. RTH: http://studio-5.financialcontent.com/investplace/quote?Symbol=RTH
  20. XRT: http://studio-5.financialcontent.com/investplace/quote?Symbol=XRT
  21. two regional banks and two savings-and-loan institutions: http://investorplace.com/2012/05/banking-customers-have-found-smaller-greener-pastures/
  22. IAT: http://studio-5.financialcontent.com/investplace/quote?Symbol=IAT
  23. CFR: http://studio-5.financialcontent.com/investplace/quote?Symbol=CFR
  24. PFS: http://studio-5.financialcontent.com/investplace/quote?Symbol=PFS
  25. VFH: http://studio-5.financialcontent.com/investplace/quote?Symbol=VFH
  26. three hospital stocks: http://investorplace.com/2012/05/3-hospital-stocks-for-a-healthy-portfolio/
  27. LPNT: http://studio-5.financialcontent.com/investplace/quote?Symbol=LPNT
  28. FXH: http://studio-5.financialcontent.com/investplace/quote?Symbol=FXH

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