by Will Ashworth | July 2, 2012 10:00 am
It was a good news/bad news kind of week for the week as the S&P 500 was up 2% for the five days of trading. Unfortunately, that wasn’t enough to deliver a positive quarter as the S&P 500 lost 2.5% in Q2. The worst offender in the second quarter was the Nasdaq , which lost 5%. The S&P 500, though, despite its Q2 loss, is still up 8% year-to-date.
As always, InvestorPlace contributors were busy last week picking stocks to negotiate through the current mine fields. Here are my ETF alternatives for those recommendations:
Starting off the week James Brumley debated whether to buy Verizon (NYSE:VZ) or AT&T (NYSE:T).
For Brumley, the choice comes down to which company is going to take market share from the other. Citing Verizon’s cross-selling partnership with Comcast (NASDAQ:CMCSA), its superior 4G LTE market penetration and high-speed internet service, Verizon is leveraging its size to make things happen. As stocks go, Verizon’s the better call.
Nonetheless, for every investor that agrees with this assessment, there’s someone who likely doesn’t. For that reason, you’re just as smart to buy the Vanguard Telecom Services ETF (NYSE:VOX), which invests in 34 telecom stocks including Verizon and AT&T — combined those two represent almost 46% of the portfolio.
With an expense ratio of just 0.19%, it’s an excellent way to play the telecom wars. However, if you truly believe Verizon is the better stock, you’ll want to own the stock itself because you’re not going to find an ETF that doesn’t own both in significant proportions.
On Tuesday Louis Navellier was in the mood for pasta and lobster, suggesting Darden Restaurants (NYSE:DRI) with its Olive Garden and Red Lobster chains, is a B-rated buy according to his Portfolio Grader tool. Interestingly, Darden’s Longhorn Steakhouse brand as well as its specialty restaurant group are what’s driving its business both in terms of sales and profits. Navellier sees supply chain improvements helping its bottom line and the 3.4% dividend yield — second highest in the Restaurants industry — certainly doesn’t hurt either.
What’s an ETF investor to do? That’s a difficult question because there isn’t an ETF that has Darden with a significant weighting, nor is there an ETF that represents the restaurant industry exclusively. At the end of the day you’re best to go with the Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF (NYSE:RCD), which is an equal weight fund whose portfolio includes 81 consumer discretionary stocks with Darden at 1.23%, only 22 basis points less than Pulte Homes (NYSE:PHM), the fund’s top holding.
Midweek Lawrence Meyers had an excellent tie-in with the hugely successful dollar store phenomenon recommending Coinstar (NASDAQ:CSTR), best known for its Redbox DVD kiosks. In addition to mentioning that Coinstar had made a deal with Family Dollar Stores (NYSE:FDO) to put its kiosks outside 7,100 stores, it also bought back 10,000 former Blockbuster Video kiosk locations — increasing its footprint considerably. I particularly like the company’s move to introduce its Rubi coffee kiosk in grocery and drug stores across the country in partnership with Starbucks (NASDAQ:SBUX).
This is a company doing smart things under the radar and Meyers is smart to own its stock. For those who want to go the ETF route to own Coinstar, I’d go with the PowerShares S&P Small Cap Consumer Discretionary Portfolio (NASDAQ:PSCD). It seeks to replicate the performance of the S&P SmallCap 600 Capped Consumer Discretionary Index, which itself is a subset of the S&P SmallCap 600. Coinstar is the number one holding at 2.88% providing investors with ownership in both Coinstar and some of the best small companies in America. Every investor under the age of 60 should have small-caps in their portfolio.
Last week wouldn’t have been complete without a healthcare pick or two. On Thursday, Richard Band recommended managed-care provider Wellpoint (NYSE:WLP), suggesting the Supreme Court’s decision to uphold the mandate requiring individuals to own health insurance will bring a large influx of new subscribers to the company in the coming years.Trading at a 35% discount to the market, Wellpoint looks very cheap.
When picking ETF alternatives to individual stocks, it sometimes makes sense to make a bet on the entire industry rather than just a few leading stocks. Given healthcare providers have been hit hard by the uncertainty in the past year, the Supreme Court ruling removes those shackles and as such, a rising tide will help all boats in this instance. Therefore, I’d go with the iShares Dow Jones U.S. Healthcare Providers Index Fund (NYSE:IHF), which has Wellpoint as its third largest holding at 6.95%. With 45 holdings, all of which are related in some way to providing health care in this country, you should experience some gains in the second half of the year.
Finishing off the week, the Dividend Growth Investor was recommending Air Products and Chemicals (NYSE:APD), a dividend aristocrat that’s been making shareholder distributions since 1954. This is a company that impacts your daily life in countless ways without you even knowing. Its gases, performance materials and equipment are incorporated into everyday items like flat-screen TVs, running shoes, bone scans, etc.
In business for 72 years, its stock’s achieved an annualized total return of 7.1% over the past decade with approximately a third of those returns from dividends. Interestingly, its earnings per share have increased 10% over the same period, so it’s possible Air Products’ stock may outperform in the future. For those who are not-so-sure but like the idea of investing in basis materials, I’d go with a tried and true ETF in the Materials Select Sector SPDR Fund (NYSE:XLB), which is dirt cheap at 0.18% and holds Air Products in the top 10 at 4.1%.
As of this writing, Will Ashworth did not own a position in any of the stocks named here.
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