ETF Alternatives for Last Week’s Hot Stocks

by Will Ashworth | May 7, 2012 2:20 pm

Berkshire Hathaway‘s (NYSE:BRK.A[1]) annual meeting was held in Omaha over the weekend. The analysis of what was said there has been fast and furious. Warren Buffett suggested that while he wouldn’t short Apple (NASDAQ:AAPL[2]) or Google (NASDAQ:GOOG[3]), he believes IBM (NYSE:[4]IBM[5]) is a much safer stock[6].

Only time will tell. Meanwhile, InvestorPlace contributors made compelling arguments for owning several stocks for the week of April 30 to May 4. Today I’ll provide you with ETF alternatives to those stocks.

Leading off the week was Sam Collins, who had a group of six picks[7], including Velti (NASDAQ:VELT[8]), a small-cap provider of mobile marketing and advertising technology. Its Q4 earnings beat analysts’ estimates by 22.9%, and the company looks ready to make a move to the upside.

Mobile marketing is clearly the future of advertising, so Velti is nicely positioned to take advantage of the trend.

I have two alternatives: The first is the PowerShares NASDAQ Internet Portfolio (NASDAQ:PNQI[9]), which owns Velti stock, though only at a 0.37% weighting, so you’d hardly notice. A much bigger fund to consider, even though it doesn’t hold Velti, is First Trust Dow Jones Internet Index Fund (NYSE:FDN[10]).

In order for a company to be included in the index that FDN replicates, at least 50% of revenues must be from the Internet. The fund’s expense ratio is identical to PNQI’s at 0.60%, but FDN has a larger technology component, making it a more appropriate selection if tech exposure is what you’re after.

Louis Navellier’s Tuesday pick was generic-drug manufacturer Watson Pharmaceuticals (NYSE:WPI[11]). Navellier believes the New Jersey-based company is a force to be reckoned with in the generic-drugs market[12]. Earnings and revenues in the first quarter were very strong; both the top and bottom line continue to exhibit excellent growth.

The ETF alternative in this instance is an easy choice: SPDR S&P Pharmaceuticals ETF (NYSE:XPH[13]) has a 30-stock portfolio, with Watson Pharmaceuticals as its second-largest holding at a weighting of 4.98%. Included in the top 10 are other well-known companies, including Abbott Labs (NYSE:ABT[14]) and Pfizer (NYSE:PFE[15]). At an annual expense ratio of 0.35%, this fund provides investors with a perfect alternative to Watson.

For a change of pace, on Wednesday I thought I’d find an ETF alternative to a “sell” recommendation.

Hilary Kramer recommended five stocks to sell[16] on May 2, and I believe is her best call is to sell Sears Holdings (NASDAQ:SHLD[17]). CEO Eddie Lampert has done everything possible to keep the floundering retailer from disappearing except fix its business.

Lampert has no idea how to retail successfully or hire those who do. Sears is the Titanic of retail.

I don’t usually recommend inverse ETFs, but in this instance I’ll make an exception. The Direxion Daily Retail Bear 3X Shares (NYSE:RETS[18]) seeks daily investment results 300% of the inverse of the performance of the Russell 1000 Retail Index, of which Sears is a part. It’s important that you consider this fund only if you believe retail in general is headed for a decline. Otherwise, you might be in for a rude surprise.

Thursday saw Jeff Reeves providing readers with a very specific buy recommendation[19], suggesting they purchase Green Mountain Coffee Roasters (NASDAQ:GMCR[20]) for no more than $28.80 a share.

Reeves characterizes this buy as taking advantage of a short-term bounce once earnings season has passed and saner heads prevail. That doesn’t mean he sees GMCR as a long-term buy-and-hold proposition, which means your best ETF alternative is a fund with higher turnover.

Unfortunately, the selection here is slim to none. Therefore, the best option is Vanguard S&P Mid-Cap 400 Growth ETF (NYSE:IVOG[21]), which has Green Mountain at a weighting of 1%, with a turnover rate of 39.7%. Too bad this wasn’t an article about call options because that’s the best way to benefit from a short-term bounce while minimizing your risk.

Closing out the week, Portfolio Grader helped investors build their income portfolios[22] through the use of real estate investment trusts (REITs). Out of the nine mentioned, the one that intrigues me most is Simon Property Group (NYSE:SPG[23]), whose Woodbury Commons outlet mall had my wife spending like a madwoman when she visited last month.

Retail might still be suffering in some parts of the country, but not at Woodbury Commons. Simon is the largest real estate company in the world and makes an excellent income investment while providing a good proxy for the retail industry. Because I like Simon, my recommendation is iShares NAREIT Retail Capped Index Fund (NYSE:RTL[24]), which has 30 holdings, including Simon at a 23.3% weighting, with a 0.48% expense ratio. Best of all, its 12-month yield is over 3%.

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

Endnotes:
  1. BRK.A: http://studio-5.financialcontent.com/investplace/quote?Symbol=BRK.A
  2. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  3. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  4. he believes IBM (NYSE:: http://www.reuters.com/article/2012/05/05/berkshire-techstocks-idUSWEN499820120505
  5. IBM: http://studio-5.financialcontent.com/investplace/quote?Symbol=IBM
  6. ) is a much safer stock: http://www.reuters.com/article/2012/05/05/berkshire-techstocks-idUSWEN499820120505
  7. group of six picks: http://investorplace.com/2012/04/top-stocks-to-buy-t-ess-kss-pxd-phm-velt/7/
  8. VELT: http://studio-5.financialcontent.com/investplace/quote?Symbol=VELT
  9. PNQI: http://studio-5.financialcontent.com/investplace/quote?Symbol=PNQI
  10. FDN: http://studio-5.financialcontent.com/investplace/quote?Symbol=FDN
  11. WPI: http://studio-5.financialcontent.com/investplace/quote?Symbol=WPI
  12. a force to be reckoned with in the generic-drugs market: http://investorplace.com/2012/05/watson-pharmaceuticals-is-no-ordinary-generic-wpi-myl-nvs-teva/
  13. XPH: http://studio-5.financialcontent.com/investplace/quote?Symbol=XPH
  14. ABT: http://studio-5.financialcontent.com/investplace/quote?Symbol=ABT
  15. PFE: http://studio-5.financialcontent.com/investplace/quote?Symbol=PFE
  16. five stocks to sell: http://investorplace.com/2012/05/5-stocks-to-sell-in-may/view-all/
  17. SHLD: http://studio-5.financialcontent.com/investplace/quote?Symbol=SHLD
  18. RETS: http://studio-5.financialcontent.com/investplace/quote?Symbol=RETS
  19. a very specific buy recommendation: http://investorplace.com/2012/05/green-mountain-stock-to-buy-earnings-gmcr/
  20. GMCR: http://studio-5.financialcontent.com/investplace/quote?Symbol=GMCR
  21. IVOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=IVOG
  22. build their income portfolios: http://investorplace.com/2012/05/9-reits-for-income-investors-amt-bxp-eqr-ggp-hc/
  23. SPG: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPG
  24. RTL: http://studio-5.financialcontent.com/investplace/quote?Symbol=RTL

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