by Will Ashworth | October 15, 2012 12:05 pm
Third-quarter earnings reports haven’t been great so far, and that’s got the markets in a downward slide. Last week the S&P 500 lost 2.2% on light volume as investors were in a profit-taking mode. As always, InvestorPlace contributors were busy recommending stocks worth buying. I’ll look at some of the ETF alternatives for the specific picks.
My first ETF alternative comes from Aaron Levitt‘s Oct. 9 article detailing yet-another bargain-basement asset sale by BP (NYSE:BP) — this time concerning how Marathon Oil (NYSE:MRO) took BP to the cleaners acquiring its Texas City refinery for $598 million, far less than the $2.85 billion BP was expecting. Recently, BP sold its Carson, Calif., refinery to Tesoro (NYSE:TSO) for a bargain also.
Although refineries are messy business, they possess a very stable business model. To capture some of this action, I’d suggest the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE:XOP), which is based on a modified equal-weight index. Tesoro and Marathon Oil are just two of the 73 holdings in the ETF, both with weightings of 1.49%.
Since its inception in June 2006, it’s averaged an annualized total return of 8.93%, which is significantly higher than the S&P 500. Most important, its annual expense ratio is a reasonable 0.35%.
Gambling was on the mind of Lawrence Meyers Oct. 9 as he explained why he felt more comfortable investing for the long term in vendors of casino equipment like International Game Technology (NYSE:IGT) and Bally Technologies (NYSE:BYI) and not the casinos themselves. Picking the ultimate winner in casino hospitality is a mug’s game. Far better to hedge your bets with firms supplying some of the bigger players, including Wynn Resorts (NASDAQ:WYNN) and Las Vegas Sands (NYSE:LVS).
The only pure-play gaming ETF is the Van Eck Market Vectors Gaming ETF (NYSE:BJK), and it’s invested almost entirely in casino operators. Therefore, your best bet is the Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF (NYSE:RCD), which holds 80 consumer discretionary stocks, including IGT at 1.25% and Wynn Resorts at 1.30%. Its expense ratio is a little high at 0.50%, but you’re getting some of the best brands in the world.
Back to Meyers for his Oct. 11 article about using tanker stocks to enerate yield. He has been a huge proponent in recent weeks of dumping bonds and replacing them with all kinds of interesting yield-generating investments including stocks like Knightsbridge Tankers (NASDAQ:VLCCF) and Navios Maritime Partners (NYSE:NMM), both of which pay dividends exceeding 11%.
The obvious alternative, as Meyers points out in his article, is the Guggenheim Shipping ETF (NYSE:SEA), which yields 3.47% and costs 0.65% annually. If you’re not so concerned about yield but like the idea of investing in the shipping industry, the SPDR S&P Transportation ETF (NYSE:XTN) holds both Kirby (NYSE:KEX) and Matson (NYSE:MATX) in its portfolio of 37 stocks. Best of all, it’s 30 basis points cheaper than the Guggenheim fund.
InvestorPlace chief technical analyst Sam Collins on Oct. 11 laid out his reasons, combining both technical and fundamental arguments, why Darden Restaurants (NYSE:DRI) was a strong buy. I’ve been a fan of Darden’s Seasons 52 concept for several years. When it bought Yard House in July, that simply stoked my enthusiasm. Given Darden’s stock has taken a bit of a step back in recent trading as a result of profit-taking, I think Collins is on the money with this call.
Your clear choice from an ETF perspective is the Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF, which I recommended previously for the casino vendors. Darden, like many of the stocks in this equal-weighted fund, represents 1.30% of the overall portfolio. Most importan, buying this ETF kills two birds with one stone.
My final ETF alternative comes from an article Jon Markman wrote Oct. 11 about Dell (NASDAQ:DELL). Markman wasn’t outright recommending the embattled tech stock, but he did suggest that investors keep an eye on it, because it’s severely undervalued. Trading lower than $10 at the moment, Dell could be worth $50 in the hands of a private buyer, Markman reckons.
Going with another equal-weighted fund, I’ll suggest the First Trust NASDAQ-100-Technology Sector Index Fund (NASDAQ:QTEC), which invests in 44 tech stocks from the Nasdaq 100 including Dell at 2.22%. Compared to the S&P 500, it’s performed exceptionally well, although you’ll want to keep in mind that its annual expense ratio of 0.60% is relatively high.
As of this writing, Will Ashworth did not own a position in any of the stocks named here.
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