In this type of situation I’d normally suggest buying the consumer staples fund with the lowest expense ratio. However, since we don’t know if any of the theatrics involving Peltz and Pepsi are going to play out, an equal-weight fund makes a whole lot of sense. Guggenheim’s S&P 500 Equal Weight Consumer Staples ETF (RHS) has Pepsi, Mondelez, Coca-Cola (KO), Dr Pepper Snapple (DPS) and Monster Beverage (MNST) at weightings of 2.46%, 2.52%, 2.46% and 2.51%, respectively. All the players in this little dance are included, and it only costs you 0.50% annually. Whatever happens, you’ll be covered.
Coach’s (COH) stock traded below $50 between July 2007 and October 2010. In the 36 months since, it has mostly traded above $50, making it difficult to know where the stock is heading next. Year-to-date, it’s down 10% compared to a gain of 25.5% for the S&P 500. The inspirational luxury brand has trailed the index for the past two years and has underperformed over a three-year period. The evidence is mounting that its best days are behind it. However, Charles Sizemore reckons that despite its North American problems, its stock is a great buy for the long term. Its brand is too strong in emerging markets to be permanently abandoned by investors. Sizemore says take the 2.7% dividend and wait for things to get better.
I might be going back to this well a little too often, but I’m recommending the Guggenheim S&P 500 Equal Weight Consumer Discretionary ETF (RCD), which holds the 83 consumer discretionary stocks in the S&P 500. Because COH performed poorly the last three months its current weighting of 1.06% is lower than all but three stocks: Cablevision (CVC), Gap (GPS) and JCPenney (JCP). Each quarter, the holdings are rebalanced back to a weighting of 1.20%. Currently, slightly more than half are above the quarterly reset. Year-to-date, RCD is beating the index itself by almost 10 percentage points, and I don’t see that changing any time soon. So, even if Coach doesn’t perform right away, the ETF should.
Caterpillar has (CAT) missed analysts’ average earnings estimates for three consecutive quarters, and its stock is down 3.5% year-to-date. Despite the obvious signs of distress, Dan Burrows believes the heavy machinery manufacturer will rebound once commodities do. Its long-term outlook is bright; the company just needs to get through the next 12-18 months. Global growth is just around the quarter.
For my last alternative, I’m going old school. The SPDR Dow Jones Industrial Average ETF (DIA) contains 30 of the biggest and oldest companies in America. While Caterpillar’s 3.49% weighting is in the middle of the pack, it’s enough to make a difference should good things start happening. Since its inception in 1998, DIA achieved an annual return of 6.61% through the end of September. Most importantly, it’s very cheap with an annual expense ratio of just 0.17%.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.