ETF Alternatives for Last Week’s Hot Stocks

by Will Ashworth | August 13, 2012 12:21 pm

ETF Alternatives for Last Week’s Hot Stocks

Despite severe doubts about the global economy, the markets continue to rally. Last week was another good week for the broader indices. The S&P 500 gained 1% to finish at 1405.87, the fifth consecutive week of gains for the index. Year-to-date, the S&P 500 is up 10.2% and the Dow is just 7% off its all-time high of 14,164.

Amid the positive environment, InvestorPlace contributors recently made a bunch of stock recommendations: Here are my ETF alternatives to those picks.

Media Stocks

Portfolio Grader — Louis Navellier’s system for ranking stocks — highlighted three media stocks[1] Monday, Aug. 6, whose rankings improved a grade in the previous week. Of the three, I’m focusing on Fisher Communications (NASDAQ:FSCI[2]), a Seattle television and radio broadcaster that began in 1910, oddly enough, as a flour milling operation.

Today, FSCI owns 20 television stations and three radio stations in Washington and Oregon. Its Portland TV station (KATU) and Seattle TV station (KOMO) accounted for 60% of its $66 million in television revenue in the first two quarters of the year. Those two stations drive the bus.

For those looking for an ETF alternative to this tiny micro-cap, you’re not going to find anything that owns Fisher in a meaningful way — but media’s not a bad way to go, so I’d recommend you buy the PowerShares Dynamic Media Portfolio (NYSE:PBS[3]), which owns 30 media companies, including Belo Corporation (NYSE:BLC[4]), its nearest rival in terms of revenue.

If you are dead-set on wrapping FSCI into the fold, the iShares Russell Microcap Index Fund (NYSE:IWC[5]) does hold Fisher — but at a tiny 0.13% weighting, alongside 1,346 other micro-cap stocks.

Visa

On Tuesday, Charles Sizemore made a compelling case[6] for Visa (NYSE:V[7]), arguing that its growth in emerging markets combined with a global move to a cashless society puts Visa in the middle of the action. In addition, the continued growth of e-commerce has it benefiting whether Amazon.com (NASDAQ:AMZN[8]) or some other online retailer wins the day. Visa gets paid to process transactions, so as long as it continues to provide a seamless process, its major concern is that consumers keep spending.

Somewhere in the world, they always do.

Unless you’re interested in financial services in general, I’d go with the First Trust US IPO Fund (NYSE:FPX[9]), which has Visa as its largest holding at a 10.51% weighting. Replicating the IPOX-100 US Index, its performance over the past three years earned a five-star rating by Morningstar among a group of 1,526 funds. I’ve never been a fan of IPOs, but this ETF proves they can perform while providing buy-and-hold investors a useful investment.

Fossil

At midweek, InvestorPlace Assistant Editor Kyle Woodley explained why Fossil (NASDAQ:FOSL[10]) was worth owning[11] despite the severe volatility in high-end retailing.

Woodley quite rightly points out that Fossil, although often compared with Coach (NYSE:COH[12]) and Tiffany (NYSE:TIF[13]), is really a notch or two lower in terms of price point. Because of this, it’s harder for both the company and analysts to know where revenues and earnings are headed. In May, it provided a bleak 2012 outlook that sent its stock tumbling 40% on the news. Fast forward three months, and its stock jumped 31% on better-than-expected Q2 earnings, as well as a full-year adjusted earnings per share estimate of $5.34 — 7 cents higher than the consensus analyst estimate.

In addition, because Fossil’s wholesale revenues are significantly higher than direct-to-consumer, it’s really more like Ralph Lauren (NYSE:RL[14]) than Coach.

Retail’s tricky right now, making individual stock picks very hazardous. Although I agree with Kyle that you can trust Fossil in the long run, at this point, a consumer discretionary ETF is a safer bet. I’d go with the Select Sector Consumer Discretionary SPDR (NYSE:XLY[15]), a group of 83 stocks that includes Fossil at 0.32%.

Research In Motion

Fellow Canadian Brad Moon was feeling speculative[16] Thursday suggesting Research In Motion (NASDAQ:RIMM[17]) was still worth something. The biggest proof: Prem Watsa, CEO of Fairfax Financial — and often considered the Canadian version of Warren Buffett — now owns close to 10% and is its largest shareholder.

Fairfax has grown its book value 23.5% annually over the past 25 years. If anyone can smell a turnaround, it’s Watsa. Besides, Watsa’s investment is approximately 10% of its $3.8 billion portfolio of common stock holdings and just 1.2% of its total assets. So Watsa’s bet is a diversified gamble.

To make the same play, an ETF is definitely the way to go. The First Trust NASDAQ CEA Smartphone Index Fund (NASDAQ:FONE[18]) is my preferred choice, with Research In Motion weighted at 2.18%. None of the 65 holdings exceeds a weighting of 3.25%, and they are divided 45% among handsets, 45% in software and hardware, and 10% in network providers. Should RIMM bounce back, this fund definitely will benefit.

CVS Caremark

Susan Aluise ended the week by offering up three reasons[19] why CVS Caremark (NYSE:CVS[20]) is a healthy company worth owning.

I’ve liked it ever since CVS acquired Caremark back in 2006, bringing the drug store retailer together with the leading pharmacy benefits manager in America. Since the deal was announced, its stock is up 63% compared to flat for the S&P 500. Recently, CVS has gained market share thanks to Walgreen‘s (NYSE:WAG[21]) spat with Express Scripts (NASDAQ:ESRX[22]). Whether CVS keeps the market share seems to be investors’ biggest concern. Personally, I think both CVS and Walgreen will do just fine no matter what happens in the PBM battlefield.

The ETF pick here is an easy one — the Market Vectors Retail ETF (NYSE:RTH[23]) — with both CVS and Walgreen in the top 10 holdings at 5.03% and 5.02%, respectively. In addition, McKesson (NYSE:MCK[24]), America’s largest pharmaceutical distributor, is a top-10 holding.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Endnotes:
  1. three media stocks: http://investorplace.com/2012/08/3-media-stocks-to-buy-now-siri-fsci-knol-2
  2. FSCI: http://studio-5.financialcontent.com/investplace/quote?Symbol=FSCI
  3. PBS: http://studio-5.financialcontent.com/investplace/quote?Symbol=PBS
  4. BLC: http://studio-5.financialcontent.com/investplace/quote?Symbol=BLC
  5. IWC: http://studio-5.financialcontent.com/investplace/quote?Symbol=IWC
  6. compelling case: http://investorplace.com/2012/08/visa-a-gold-medal-opportunity/
  7. V: http://studio-5.financialcontent.com/investplace/quote?Symbol=V
  8. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  9. FPX: http://studio-5.financialcontent.com/investplace/quote?Symbol=FPX
  10. FOSL: http://studio-5.financialcontent.com/investplace/quote?Symbol=FOSL
  11. was worth owning: http://investorplace.com/2012/08/where-fossil-differs-from-luxury-brands/
  12. COH: http://studio-5.financialcontent.com/investplace/quote?Symbol=COH
  13. TIF: http://studio-5.financialcontent.com/investplace/quote?Symbol=TIF
  14. RL: http://studio-5.financialcontent.com/investplace/quote?Symbol=RL
  15. XLY: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLY
  16. feeling speculative: http://investorplace.com/2012/08/rimm-a-year-of-misfires-and-lost-opportunity-but-still-worth-something/
  17. RIMM: http://studio-5.financialcontent.com/investplace/quote?Symbol=RIMM
  18. FONE: http://studio-5.financialcontent.com/investplace/quote?Symbol=FONE
  19. three reasons: http://investorplace.com/2012/08/3-reasons-cvs-caremark-looks-healthy/
  20. CVS: http://studio-5.financialcontent.com/investplace/quote?Symbol=CVS
  21. WAG: http://studio-5.financialcontent.com/investplace/quote?Symbol=WAG
  22. ESRX: http://studio-5.financialcontent.com/investplace/quote?Symbol=ESRX
  23. RTH: http://studio-5.financialcontent.com/investplace/quote?Symbol=RTH
  24. MCK: http://studio-5.financialcontent.com/investplace/quote?Symbol=MCK

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