A New Kind of Value Meal: ETF Alternatives for Hot Stock Picks

This week we look at leisure, mid-cap, steel stocks and more

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The natural tendency in this situation is to go with an energy-related ETF. However, Aaron was specific in his praise of HollyFrontier and not refiners in general. Therefore, I’m going to recommend the Vanguard S&P Mid-Cap 400 Growth Index ETF (IVOG), which is a collection of 227 mid-cap growth stocks from the S&P Mid-Cap 400.

HollyFrontier is the fifth-largest holding with a 1.3% weighting. Other stocks I like in its top 25 holdings include Tractor Supply (TSCO) and Polaris Industries (PII). Historically, mid-cap stocks outperform both small- and large-cap stocks. Best of all, Vanguard’s expense ratio of 0.20% is wonderfully cheap.

Top-Dollar

Next up, assistant editor Alyssa Oursler recommended four stocks trading well above $100 last week, pointing out that investors shouldn’t get caught up in the stock price itself, but should worry about the valuation. Just because Amazon (AMZN) is trading for over $300 doesn’t mean it isn’t worth owning. The same holds for Chipotle Mexican Grill (CMG), MasterCard (MA) and Google (GOOG). They’re all good companies trading at fair prices.

To own all four of these stocks, your best bet is an ETF related to the S&P 500. In my opinion, the iShares Core S&P 500 ETF (IVV) gives you the best possible weightings for all four of them — including Google in the top 10 at 1.59% — and is strong core fund for any investment portfolio.

Best of all, your annual expense ratio is 0.07%, meaning you’ll barely notice you’re being charged a fee.

Mechel Steel

My last ETF alternative comes via a stock recommendation by Anthony Mirhaydari, who recently pointed out five stocks that should benefit from the Fed’s decision not to taper. With such a diverse group, you’re not going to find a fund that holds all five in any significant manner … but I see the steel industry having the best potential appreciation of all the industries mentioned. Therefore, I’ll go with an ETF that holds Russian steel company Mechel Steel (MTL).

That ETF is Market Vectors Steel ETF (SLX), which has Mechel Steel at a weighting of 1.42%. A total of 26 steel companies are held in the portfolio, with Vale (VALE) and Rio Tinto (RIO) accounting for almost a quarter of it.

A few things to note: The annual expense ratio of 0.55% is above average, although not outlandishly so. SLX also isn’t well-loved by Morningstar, with a one-star rating. The bottom line: It’s definitely a contrarian play. Given the inherent risk of steel stocks, SLX should at most represent 5% of your investment portfolio.

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


Article printed from InvestorPlace Media, http://investorplace.com/2013/09/a-new-kind-of-value-meal-etf-alternatives-for-hot-stock-picks/.

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