The S&P 500 was up 0.9% this past week, its third consecutive weekly gain. The index is hitting new all-time highs while consumer confidence goes the other way. With interest rates looking like they’re going to stay low for some time, equities remain the play to be. Here are my ETF alternatives to some of our contributors’ stock recommendations from last week.
The Kinder Morgan (KMI) empire has taken it on the chin in recent months due to a special report from Hedgeye Risk Management that asserted Kinder Morgan was a “house of cards” ready for a nasty spill. Aaron Levitt points out that rising cash flows across its various entities should be enough to push it back above $40. Levitt sees nothing but good times ahead, suggesting now is the time to buy its stock.
A great way to get in on the action while also getting excellent diversification is to buy First Trust’s US IPO Index Fund (FPX), which has KMI in the top 10 holdings with a weighting of 4.44%. There are exactly 100 companies in the fund with an emphasis on mid- and large-cap stocks. In existence since April 2006, the fund gets five stars from Morningstar for its performance over the past five years compared to 1302 funds in the large growth category. As ETFs go, this is one of my favorites because 25% of its $231 million in total net assets are invested in consumer discretionary stocks, which generally tend to be market leaders when the indices are rising.
Jeff Reeves was all over the electric vehicle revolution last week providing readers with three ways to play the trend other than Tesla (TSLA), which is up an eye-popping 400% year-to-date and 517% for the past 52 weeks through October 25. I’m a big fan of Tesla. Long-term I think it will grow into its currently insane valuation, but that might take 12-18 months. Of Jeff’s recommendations, Johnson Controls (JCI) is probably the most mainstream bet that will do well regardless of the electric vehicle market.
If you’re like me and admire Tesla, but you’re worried about its excessive valuation, I’d recommend you take a look at the FPX from above. It has Tesla in the top 10 at a weighting of 2.42% — enough to have a meaningful position but not enough to get burned by a serious reversion to the mean. On the other hand, if you want to go with Johnson Controls, my suggestion is the PowerShares Cleantech Portfolio (PZD), which invests in 60 companies benefiting from clean energy movement. PZD is a modified equal-weighted fund in existence since October 2006. With a weighting of 2.99%, JCI is one of just three consumer discretionary stocks included in the portfolio. Its performance until recently has been extremely underwhelming, but it has since broken out to beat the market. Hopefully, it can carry its strong performance in 2013 (up 32% YTD through October 25) into next year.
PepsiCo’s (PEP) stock is up 24% year-to-date, almost double its soft drink peers. That has Tom Taulli wondering about the pros and cons of owning its stock. Activist investor Nelson Peltz likes Pepsi so much, he’s bought almost 13 million shares. However, he’d like it even more if the snack giant were to split its snacks business from its beverage business. The real growth is at Frito Lay; Peltz wants Pepsi CEO Indra Nooyi to split the company and then buy Mondelez International (MDLZ) to create a snacks behemoth. While it’s an interesting proposition, Pepsi’s stock has flatlined since Peltz went public with the idea in July. Nonetheless, Tom says it’s a buy.