ETF Alternatives for Last Week’s Hot Stocks

by Will Ashworth | December 26, 2012 9:25 am

Last week, in what was the final full week of trading in 2012, the S&P 500 again finished in the black, despite fiscal cliff apprehension. In fact, the S&P 500 is about to log its third best year in a decade with double-digit gains.

With that in mind, InvestorPlace contributors continued providing readers with stock recommendations this past week. Here are some equally attractive exchange-traded funds.

Discretionary Spending

Lawrence Meyers was in a frisky mood last week, recommending Rick’s Cabaret International (NASDAQ:RICK[1]) — a Houston-based operator of upscale gentleman’s clubs[2]. It’s been a good year for the company, which boasts revenue of $95 million and same-store sales growth of over 4%.

Still, this is the type of business that has been hit hard from the recession, as discretionary spending all but disappeared until this past year. A better solution may thus be to buy the Consumer Discretionary Select Sector SPDR Fund (NYSE:XLY[3]).¬† It’s not nearly as exciting as investing in gentleman’s clubs, but it will give you exposure to five large restaurant companies including McDonald’s (NYSE:MCD[4]) and Starbucks (NASDAQ:SBUX[5]) in the top ten.

In fact, InvestorPlace assistant editor Marc Bastow returned to work last Monday after a weekend in New York City, and he was especially blown away by how well Starbucks was doing in Manhattan. Every location seemed to be packed to the rafters[6]. There isn’t an ETF that provides a significant weighting in its stock, but the XLY has it weighted a 2.7%. That’s better than nothing.

Plus, the fund has an annual expense ratio of 0.18% — nice and cheap — and has done well in the long run.

Travel

Johnson Research Group was talking about three stocks that have gotten lots of attention in recent weeks from short sellers[7]. Johnson reckons that Expedia (NASDAQ:EXPE[8]) should benefit from a short squeeze in the not-to-distant future given that it hit new highs on better-than-expected earnings.

An interesting alternative (and one I don’t believe I’ve recommended before) is the PowerShares Dynamic OTC Portfolio (NYSE:PWO[9]), which is 100 of the best stocks from the Nasdaq in terms of risk-return profiles. To be fair, 45% of the fund is invested in technology stocks. If you’re like Warren Buffett and shy away from tech, it might not be for you.

On the plus side, it has investments in eight other sectors, making it extremely diversified while still giving you a 3.8% weighting in Expedia. Plus, it’s not super expensive at 0.60%.

Guns

Given all the attention guns have received over the past week, I decided to provide an ETF alternative to my own pick: Cabela’s (NYSE:CAB[10]), the outdoor specialty retailer that generates one-fifth of its revenue from gun sales[11]. While it’s going to be a tough go in the short-term for all things gun-related including Cabela’s, long-term it’ll do just fine.

If you’re nervous about the short-term volatility, pick up the Vanguard S&P Small-Cap 600 Value ETF (NYSE:VIOV[12]), which had Cabela’s as a top ten holding until its swoon in November. With 454 small-cap value stocks, you take on far less company risk and have¬† good opportunities on the upside. In addition, like all Vanguard funds, it’s cheap at 0.22%.

Mega-Caps

InvestorPlace editorial assistant Alyssa Oursler scanned the financial websites last week, looking for some consensus amongst the experts about the best stocks to own in 2013[13]. A total of nine different media outlets — including Barron’s and Fortune — agreed on some picks, with the four most popular being Apple (NASDAQ:AAPL[14]), Ford (NYSE:F[15]), Comcast (NYSE:CMSCA[16]) and Bank of America (NYSE:BAC[17]) .

I’ll save you the trouble of picking your favorite, though, by recommending First Trust Mega Cap AlphaDEX Fund (NYSE:FMK[18]), a collection of 50 stocks chosen from 100 of the largest stocks from the S&P U.S. broad market index exhibiting certain value and growth characteristics. It’s a tad expensive at 0.70%, but if you like all four stocks the experts do, this is the way to go. Ford is the top holding, while Comcast is No. 4.

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

Endnotes:
  1. RICK: http://studio-5.financialcontent.com/investplace/quote?Symbol=RICK
  2. upscale gentleman’s clubs: http://investorplace.com/2012/12/how-to-profit-from-lap-dances/
  3. XLY: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLY
  4. MCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=MCD
  5. SBUX: http://studio-5.financialcontent.com/investplace/quote?Symbol=SBUX
  6. packed to the rafters: http://investorplace.com/2012/12/starbucks-definitely-serves-manhattan-and-shareholders-sbux-aapl-amzn-bks-dnkn-cbou/
  7. short sellers: http://investorplace.com/2012/12/the-shorts-are-wrong-on-these-3-stocks/
  8. EXPE: http://studio-5.financialcontent.com/investplace/quote?Symbol=EXPE
  9. PWO: http://studio-5.financialcontent.com/investplace/quote?Symbol=PWO
  10. CAB: http://studio-5.financialcontent.com/investplace/quote?Symbol=CAB
  11. gun sales: http://investorplace.com/2012/12/cabelas-takes-an-unjustified-beating/
  12. VIOV: http://studio-5.financialcontent.com/investplace/quote?Symbol=VIOV
  13. best stocks to own in 2013: http://investorplace.com/2012/12/4-favorite-favorite-stock-picks-for-2013/view-all/
  14. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  15. F: http://studio-5.financialcontent.com/investplace/quote?Symbol=F
  16. CMSCA: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMSCA
  17. BAC: http://studio-5.financialcontent.com/investplace/quote?Symbol=BAC
  18. FMK: http://studio-5.financialcontent.com/investplace/quote?Symbol=FMK

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