ETF Alternatives for Last Week’s Hot Stocks

by Will Ashworth | April 8, 2013 2:32 pm

The bloom came flying off the rose last week, as the S&P 500 lost 1% of its value while the Dow Jones Industrial Average remained almost flat. The spread between the Dow and S&P 500 year-to-date now sits at 224 basis points, as the broader index seems to be having trouble moving higher.

Despite the stumble, though, equities are still the best place for your money. Here are five ETF alternatives to those stocks InvestorPlace experts liked in the past week:

Nuance

Carl Icahn has been a very busy man in the past year. Whether it be publicly fighting with Bill Ackman or making a smart investment in Netflix (NASDAQ:NFLX[1]), the 76-year-old is busier than ever at a time when most people are enjoying time on the golf course. Tom Taulli wondered April 2 whether investors should follow Icahn’s lead[2] and take a stake in Nuance (NASDAQ:NUAN[3]), whose technology powers Apple’s (NASDAQ:AAPL[4]) Siri voice recognition program. Taulli figures Icahn sees more value in the company by splitting it into three distinct pieces. Certainly, it would boost the returns to shareholders.

A good way to play Nuance is to buy the First Trust NASDAQ-100-Technology Sector Index Fund (NASDAQ:QTEC[5]). Equally weighted, it’s 44 of the best technology companies traded on the NASDAQ, and Nuance is the top holding at 2.57%. Other top 10 holdings include Yahoo! (NASDAQ:YHOO[6]) and Adobe Systems (NASDAQ:ADBE[7]). Rebalanced quarterly (March, June, September and December) and reconstituted once a year in December, this ETF gives you good exposure to the technology sector while also capturing an investment in Nuance. At 0.6%, QTEC is a tad expensive, but the performance has always been outstanding.

Hershey

On April 3, Louis Navellier came out with three recommendations for S&P 500 stocks[8] you should buy now. Of the three choices ,my favorite would be candy company Hershey (NYSE:HSY[9]). Navellier believes its new product introductions are being well received in the marketplace and earnings will continue to grow by double digits regardless of the economy. This is a consumer staple that everyone should have in their portfolio.

The go-to ETF here is the PowerShares Dynamic Food & Beverage Portfolio (NYSE:PBJ[10]), which is the 30 of the best U.S. food and beverage companies. Hershey is the fourth largest holding with a weighting of 4.96%. Consumer staples make up 83% of the fund’s $195 million in total net assets, with the remaining 12% in consumer discretionary stocks and 5% in materials stocks. Since its inception in June 2005, it has achieved an annual return of 7.68%, easily outpacing the S&P 500. Like QTEC, PBJ’s expense ratio (0.63%) isn’t cheap, but its performance makes up for the higher fee.

TransCanada

Energy guru Aaron Levitt discussed April 3 how Exxon Mobil’s (NYSE:XOM[11]) Pegasus pipeline leak in Arkansas could eventually put downward pressure on TransCanada’s (NYSE:TRP[12]) stock. TransCanada’s Keystone XL pipeline[13] expansion is once again in doubt because of this spill and others in recent weeks. Levitt believes the technology TransCanada brings to the table makes it a far safer proposition than many of the existing pipelines — including Exxon’s Pegasus, which was built in the 1940s — and that any weakness in its shares should be seen as a buying opportunity.

If you want to hedge your bet, you can always buy the iShares S&P Global Infrastructure Index Fund (NYSE:IGF[14]), which invests in infrastructure stocks from around the world. TransCanada is the third largest of IGF’s 76 holdings with a weighting of 4%. The top 10 countries represent 87% of its $413 million in total net assets, with the U.S. tops at 28.38% and Canada second at 11.07%. With an expense ratio of 0.48%, you’re paying a reasonable management fee to gain exposure to some of the world’s biggest infrastructure plays.

Expedia

April 4 was your lucky day. Lawrence Meyers gave investors not one, but four stock ideas[15]. His reasoning was simple: Each of the stocks recommended — including Sturm, Ruger (NYSE:RGR[16]), Francesca’s (NASDAQ:FRAN[17]), Expedia (NASDAQ:EXPE[18]) and EZCorp (NASDAQ:EZPW[19]) — was oversold. I particularly like Expedia, whose travel business is rock-solid, generating more than $1 billion in free cash flow annually.

The ETF alternative in this instance is a no-brainer. The PowerShares NASDAQ Internet Portfolio (NASDAQ:PNQI[20]) invests in 73 Internet-related stocks, including Expedia at 3.16%. The top 10 holdings represent 58% of the fund’s $57.6 million in total net assets. PNQI’s performance during the past three years is nothing short of phenomenal, up 16.68% through April 5 compared to 11.73% for the S&P 500. Word to the wise: Performance-chasing isn’t a good idea, but if you want to own Internet-related companies like Expedia, this is the way to go.

LinkedIn

Over at The Slant, Jeff Reeves was getting excited about LinkedIn‘s (NASDAQ:LNKD[21]) earnings and stock performance. Jeff sees lots of growth ahead[22] for the networking service. While he does admit the frothy valuation should make you scared about buying a stock that’s up 50% year-to-date and almost 400% since its IPO, he also suggests there’s money to be made still — but only if you’re prepared for lots of volatility and the use of stop-losses.

Even more focused than the PNQI, the Global X Social Media Index ETF (NASDAQ:SOCL[23]) invests in 28 companies currently rocking it in social media. Its top 10 holdings is a who’s who of social media with LinkedIn at No. 1 with a weighting of 15.16%. By going with this ETF instead of buying LinkedIn stock directly, you can still potentially benefit even if its stock doesn’t keep moving higher.

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

Endnotes:
  1. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  2. whether investors should follow Icahn’s lead: http://investorplace.com/2013/04/should-you-follow-icahn-into-nuance/
  3. NUAN: http://studio-5.financialcontent.com/investplace/quote?Symbol=NUAN
  4. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  5. QTEC: http://studio-5.financialcontent.com/investplace/quote?Symbol=QTEC
  6. YHOO: http://studio-5.financialcontent.com/investplace/quote?Symbol=YHOO
  7. ADBE: http://studio-5.financialcontent.com/investplace/quote?Symbol=ADBE
  8. three recommendations for S&P 500 stocks: http://investorplace.com/2013/04/buy-these-3-sp-500-stocks-now/
  9. HSY: http://studio-5.financialcontent.com/investplace/quote?Symbol=HSY
  10. PBJ: http://studio-5.financialcontent.com/investplace/quote?Symbol=PBJ
  11. XOM: http://studio-5.financialcontent.com/investplace/quote?Symbol=XOM
  12. TRP: http://studio-5.financialcontent.com/investplace/quote?Symbol=TRP
  13. Keystone XL pipeline: http://investorplace.com/2013/04/watch-for-an-exxon-discount-on-transcanada/
  14. IGF: http://studio-5.financialcontent.com/investplace/quote?Symbol=IGF
  15. four stock ideas: http://investorplace.com/2013/04/buy-these-4-oversold-stocks-for-20-50-returns/
  16. RGR: http://studio-5.financialcontent.com/investplace/quote?Symbol=RGR
  17. FRAN: http://studio-5.financialcontent.com/investplace/quote?Symbol=FRAN
  18. EXPE: http://studio-5.financialcontent.com/investplace/quote?Symbol=EXPE
  19. EZPW: http://studio-5.financialcontent.com/investplace/quote?Symbol=EZPW
  20. PNQI: http://studio-5.financialcontent.com/investplace/quote?Symbol=PNQI
  21. LNKD: http://studio-5.financialcontent.com/investplace/quote?Symbol=LNKD
  22. lots of growth ahead: http://slant.investorplace.com/2013/04/buy-linkedin-stock-before-earnings/
  23. SOCL: http://studio-5.financialcontent.com/investplace/quote?Symbol=SOCL

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