ETF Alternatives for Last Week’s Hot Stocks

by Will Ashworth | March 11, 2013 2:30 pm

Almost four years ago, the Dow Jones Industrial Average and the S&P 500 were hitting lows not seen in over a decade. Boy, how times have changed.

The Dow finished last week at an all-time high, while the S&P 500 was just 14 basis points from its own record. Times are good in the markets and that has InvestorPlace contributors licking their chops.

With that in mind, check out these ETF alternatives for several of their picks last week:

Fastenal

Johnson Research Group started off the week by looking to make some money from a short squeeze[1]. Their pick was Fastenal (NASDAQ:FAST[2]), as its short interest ratio is 11.1, meaning it will take 11 days of average volume for shorts to cover their positions.

If you’re not so sure Fastenal’s going on a run but like the idea of investing in the industrial sector, I’d suggest you have a look at the Guggenheim S&P 500 Equal Weight Industrials ETF (NYSE:RGI[3]), which invests in 60 stocks from approximately over 10 industrial-related industries at an expense ratio of 0.50%.

Fastenal’s current weighting is 1.78%. Plus, don’t be worried about investing in an ETF with just $26 million in total net assets, even though Guggenheim announced the closing of nine of its funds in mid-February. The RGI is a subset of the highly successful Guggenheim S&P 500 Equal Weight ETF (NYSE:RSP[4]), which has $4.2 billion in total net assets and a Fastenal weighting of 0.21%.

PetSmart

InvestorPlace editorial assistant Alyssa Oursler gave readers five reasons[5] PetSmart (NASDAQ:PETM[6]) is a great investment last week, noting that the company boasts multiple revenue streams and a loyal customer base. Plus, Alyssa points out that PetSmart has just 70 stores and only five boarding locations in Canada, leaving room for expansion.

The best way to play PetSmart? The Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF (NYSE:RCD[7]), which is outpacing the market with over 11% gains so far this year. When it’s rebalanced next, PetSmart’s weighting will be approximately 1.21% — up from its current weighting of 0.99%. If Alyssa’s right — and I think she is — you’ll get an extra bump from PetSmart’s recovery.

Time Warner

The powers that be at Time Warner (NYSE:TWX[8]) came to their senses last week, announcing a spin-off of its entire magazine business[9] — officially bringing to a close any discussions with Meredith Corp. (NYSE:MDP[10]). While I felt there was merit to the Time-Meredith combination[11], Meredith’s loss is definitely Time Warner’s gain. Tom Taulli especially likes the fact Time Warner is focusing on its television and movie businesses.

How can you benefit from this news? Well, you have two choices. One option is to go for media and buy the PowerShares Dynamic Media Portfolio (NYSE:PBS[12]), which holds 30 of the biggest media companies in the U.S for an expense ratio of 0.63%. While I assume the spin-off will be a part of the fund when it happens, I can’t say for certain. Regardless, Time Warner is a top holding at 5%, while Time Warner Cable (NYSE:TWC[13]) is just under that, along with AOL (NYSE:AOL[14]) and Meredith.

The second alternative is the PowerShares Dynamic Leisure and Entertainment Portfolio (NYSE:PEJ[15]), which also comes with an expense ratio of 0.63%. While more diverse, it also has Time Warner as its second largest holding at just over 5% — slightly less than Discovery Communications (NASDAQ:DISCA[16]) and equal to Starbucks (NASDAQ:SBUX[17]). While the media ETF has done better in the last year, I’d be more inclined to go with the PEJ because it has a better long-term record.

Exxon

Nothing bores me more than recommending large-cap oil stocks[18] — especially Exxon Mobil (NYSE:XOM[19]). Thankfully, InvestorPlace can lean on Aaron Levitt, who loves the energy business and thinks the world of the giant company. Simply put, Levitt feels Exxon’s production woes at the moment can be quickly solved with an acquisition or two, especially given its free cash flow in 2012 was approximately $22 billion.

The ETF alternative here is as straightforward as they come. If you like Exxon Mobil and also want to benefit from some of the potential takeover targets Aaron mentioned in his article, you must go with the Energy SPDR (NYSE:XLE[20]), which has Exxon Mobil as its number one holding with a weighting of 17%. Two of the three acquisition targets are in its top 10 holdings, along with two of Exxon Mobil’s biggest rivals. At at expense ratio of 0.18%, you’re getting excellent exposure to the energy sector in general and Exxon specifically for only 0.18% in expenses.

Internet Stocks

Over at The Slant, editor Jeff Reeves was busy pointing out that firms like Zillow (NASDAQ:Z[21]) and Trulia (NYSE:TRLA[22]) have permanently changed the way we buy houses[23]. His infographic is most telling. More people today find the house of their dreams searching online and that’s just part of an online mega-shift.

With that in mind, the best ETF is the PowerShares NASDAQ Internet Portfolio (NASDAQ:PNQI[24]), which has Internet giant Google (NASDAQ:GOOG[25]) as its number one holding at over 8%, and also holds a small weighting in Zillow. Expenses are 0.60%.

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

Endnotes:
  1. make some money from a short squeeze: http://investorplace.com/2013/03/3-short-squeeze-candidates-for-march-fast-kim-syy/
  2. FAST: http://studio-5.financialcontent.com/investplace/quote?Symbol=FAST
  3. RGI: http://studio-5.financialcontent.com/investplace/quote?Symbol=RGI
  4. RSP: http://studio-5.financialcontent.com/investplace/quote?Symbol=RSP
  5. five reasons: http://investorplace.com/2013/03/5-reasons-to-fetch-petsmarts-stock/
  6. PETM: http://studio-5.financialcontent.com/investplace/quote?Symbol=PETM
  7. RCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=RCD
  8. TWX: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWX
  9. spin-off of its entire magazine business: http://investorplace.com/2013/03/tune-into-an-increasingly-focused-time-warner/
  10. MDP: http://studio-5.financialcontent.com/investplace/quote?Symbol=MDP
  11. merit to the Time-Meredith combination: http://investorplace.com/2013/02/3-reasons-a-time-meredith-magazine-marriage-makes-sense/
  12. PBS: http://studio-5.financialcontent.com/investplace/quote?Symbol=PBS
  13. TWC: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWC
  14. AOL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AOL
  15. PEJ: http://studio-5.financialcontent.com/investplace/quote?Symbol=PEJ
  16. DISCA: http://studio-5.financialcontent.com/investplace/quote?Symbol=DISCA
  17. SBUX: http://studio-5.financialcontent.com/investplace/quote?Symbol=SBUX
  18. large-cap oil stocks: http://investorplace.com/2013/03/exxons-short-on-production-but-you-should-still-go-long/
  19. XOM: http://studio-5.financialcontent.com/investplace/quote?Symbol=XOM
  20. XLE: http://studio-5.financialcontent.com/investplace/quote?Symbol=XLE
  21. Z: http://studio-5.financialcontent.com/investplace/quote?Symbol=Z
  22. TRLA: http://studio-5.financialcontent.com/investplace/quote?Symbol=TRLA
  23. changed the way we buy houses: http://slant.investorplace.com/2013/03/the-next-real-estate-boom-will-be-in-zillow-and-trulia/
  24. PNQI: http://studio-5.financialcontent.com/investplace/quote?Symbol=PNQI
  25. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG

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