ETF Alternatives to Last Week’s Hot Stocks

by Will Ashworth | January 7, 2013 10:45 am

Last week’s resolution of the fiscal cliff supercharged the markets, delivering a 4.6% return for the S&P 500. The index closed at its highest level in five years and gave InvestorPlace contributors plenty of ideas for the year ahead. Here are my exchange-traded fund alternatives to some of those individual stock picks.

Aaron Levitt[1] started the New Year by pointing out that timber assets[2] would continue to do well in 2013 after being the best-performing commodity over the past year (surprise!). He went on to suggest forest products could be just beginning an extended period of success. Certainly, the U.S. housing recovery will help fuel the commodity’s future gains.

Levitt likes Deltic Timber (NYSE:DEL[3]), an Arkansas company that owns 445,000 acres of timberland in its home state and north Louisiana. For those who would like some exposure to bigger companies, the iShares Global Timber & Forestry (NASDAQ:WOOD[4]) gives you 27 forestry-related stocks, including Deltic at a weighting of 1.88%. Since its inception in 2008, WOOD has seen positive returns in three out of four years, including a total return of 23.6% in 2012. Who knew timber was so lucrative?

Tom Taulli[5] argued the pros and cons[6] of owning Nokia‘s (NYSE:NOK[7]) stock on Jan. 2. Taulli concluded that the combination of its Lumia models, which are gaining wide appeal in China, with its viability as a third option for carriers like AT&T (NYSE:T[8]), makes Nokia a reasonably priced investment with an attractive 4.5% dividend yield.

I tend to view Nokia along the same lines as Research In Motion (NASDAQ:RIMM[9]): I seriously doubt either company can regain its former glory. Still, it’s possible that both can eke out some gains in 2013. Your best ETF alternative is to buy the First Trust NASDAQ CEA Smartphone Index Fund (NASDAQ:FONE[10]), which seeks to replicate the performance of the NASDAQ OMX CEA Smartphone Index.

Companies in the index have a minimum market cap of $250 million and are equally weighted within three different segments: handsets (45%), software applications and hardware components (45%), and network providers (10%). Of the 64 holdings, Nokia is the fourth-largest at 2.89%. All the big players, including Apple (NASDAQ:AAPL[11]), are in the fund. Over the last three months, it’s up 12.9% through Jan. 4. Owning this ETF is far less risky than owning Nokia.

Also on Jan. 2, InvestorPlace chief technical analyst Sam Collins[12] recommended six blue-chip stocks[13] to own. Of his selections, I found DaVita HealthCare Partners (NYSE:DVA[14]) to be the most compelling. DaVita’s total return in 2012 was 45.8%, significantly higher than both the medical care industry and the S&P 500.

Fresh off its $4.4 billion acquisition of HealthCare Partners in November, DaVita is now the largest managed healthcare company in the U.S. While I could recommend several healthcare ETFs, I’m going to suggest buying Berkshire Hathaway (NYSE:BRK.B[15]) instead.

Warren Buffett’s company is essentially a large ETF anyway — only you don’t have to pay a management fee. Berkshire has acquired 13.6 million shares of DaVita through Dec. 6. That’s 13% of the company. In addition to DaVita, Berkshire also owns shares in GlaxoSmithKline (NYSE:GSK[16]), Johnson & Johnson (NYSE:JNJ[17]) and Sanofi (NYSE:SNY[18]). What more do you really need in healthcare?

As part of InvestorPlace‘s 10 Best Stocks for 2013, editor Jeff Reeves went with Intel NASDAQ:INTC[19]), a blue-chip semiconductor stock[20] he feels is undervalued. I have to give Jeff credit. I’ve never been a fan of semiconductor stocks because they’re as unpredictable as they come. Nonetheless, as Jeff points out, INTC does have an attractive 4.4% dividend yield and $3.25 billion in net cash.

Being skeptical of semiconductor stocks, I’m going to recommend the Schwab U.S. Dividend Equity ETF (NYSE:SCHD[21]), which has Intel at a weighting of 3.87%. That makes it the fifth-largest holding out of a total of 101. SCHD’s 30-day SEC yield is more than respectable at 3.21%, and its expense ratio is a bargain-basement 0.07%. I’d consider this a good core holding in any portfolio.

Last up, Jon Markman[22], editor of Trader’s Advantage, recommended Mexico’s Femsa (NYSE:FMX[23]) on Jan. 3 as his pick in InvestorPlace‘s 10 Best Stock’s for 2013. Femsa is one of my favorite non-U.S. stocks. In 2012 it gained 44%, and over the past decade it has achieved an annualized return of 24.3%[24].

Femsa’s sale of its beer operations in 2010 was a brilliant move, allowing it to focus on its convenience-store business while still maintaining a 20% interest in Heineken. Given that Modelo, its biggest competitor in Mexico, was sold to Anheuser-Busch InBev (NYSE:BUD[25]) in June 2012 for $20.1 billion, Femsa is better off with the beer operations in the hands of Heineken, a much bigger company.

Although a couple of ETFs hold Femsa with significant weightings, I’m going to err on the side of caution (because most of those ETFs have tiny assets) and go with the Vanguard MSCI Emerging Markets ETF (NYSE:VWO[26]), which has 908 holdings and $71.4 billion in total net assets. The fund owns $358 million in Femsa shares, which compares to the top holding of Samsung at $1.8 billion. If you believe in emerging markets, this is the fund to own.

As of this writing, Will Ashworth didn’t own any securities mentioned here. 

Endnotes:
  1. Aaron Levitt: http://investorplace.com/author/aaron-levitt/
  2. timber assets: http://investorplace.com/2013/01/no-tumble-in-sight-for-timber/
  3. DEL: http://studio-5.financialcontent.com/investplace/quote?Symbol=DEL
  4. WOOD: http://studio-5.financialcontent.com/investplace/quote?Symbol=WOOD
  5. Tom Taulli: http://investorplace.com/author/tom-taulli/
  6. pros and cons: http://investorplace.com/2013/01/should-i-buy-nokia-3-pros-3-cons/
  7. NOK: http://studio-5.financialcontent.com/investplace/quote?Symbol=NOK
  8. T: http://studio-5.financialcontent.com/investplace/quote?Symbol=T
  9. RIMM: http://studio-5.financialcontent.com/investplace/quote?Symbol=RIMM
  10. FONE: http://studio-5.financialcontent.com/investplace/quote?Symbol=FONE
  11. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  12. Sam Collins: http://investorplace.com/author/sam-collins/
  13. six blue-chip stocks: http://investorplace.com/2013/01/top-stocks-to-buy-amgn-aapl-bac-dva-ibm-trn/view-all/
  14. DVA: http://studio-5.financialcontent.com/investplace/quote?Symbol=DVA
  15. BRK.B: http://studio-5.financialcontent.com/investplace/quote?Symbol=BRK.B
  16. GSK: http://studio-5.financialcontent.com/investplace/quote?Symbol=GSK
  17. JNJ: http://studio-5.financialcontent.com/investplace/quote?Symbol=JNJ
  18. SNY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SNY
  19. INTC: http://studio-5.financialcontent.com/investplace/quote?Symbol=INTC
  20. blue-chip semiconductor stock: http://investorplace.com/2013/01/intel-pays-big-dividends-now-and-shares-could-soar-in-2013/
  21. SCHD: http://studio-5.financialcontent.com/investplace/quote?Symbol=SCHD
  22. Jon Markman: http://investorplace.com/author/jon-markman/
  23. FMX: http://studio-5.financialcontent.com/investplace/quote?Symbol=FMX
  24. annualized return of 24.3%: http://investorplace.com/2013/01/fmx-quench-your-thirst-for-growth-with-femsa/
  25. BUD: http://studio-5.financialcontent.com/investplace/quote?Symbol=BUD
  26. VWO: http://studio-5.financialcontent.com/investplace/quote?Symbol=VWO

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