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Use ETFs to Stuff Yourself Full of Blue Chips

This week we look at conglomerates, energy, construction, large cap, and consumer services stocks.

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Stocks took flight this past Wednesday when it became apparent a deal to avoid the federal government defaulting on its debt was possible. Two-percentage-point jumps in the S&P 500 don’t happen too often, even in these frothy markets.

So, it appears at least some investors still are willing to buy. As a result, InvestorPlace contributors were busy making stock recommendations last week, though I think harnessing those picks via exchange-traded funds might be a better solution.


Conglomerates are some of the most interesting investments you can own. Often misunderstood, they seem to come into and out of fashion quite frequently. I provided readers with three interesting recommendations Oct. 7, of which Loews Corp. (L) is the most recognizable. Value investors at heart, the Tisch family will sit on the sidelines until an interesting proposition comes along. It has been awhile since the company has made a big splash.

Buying an ETF alternative is a good way to wait for that ship to come in. I’ve always preferred equal-weight ETFs to market cap funds, so I’m going to recommend the Guggenheim S&P 500 Equal Weight Financial ETF (RYF), a collection of 81 financial stocks from the S&P 500. With an expense ratio slightly above average at 0.5%, or $50 annually for every $10,000 invested, the fund has returned 15.1% annually over the past five years, which is very acceptable. Loews’ current weighting in RYF is 1.26%.

Exxon Mobil

Aaron Levitt says to head south of the Rio Grande if you’re looking to score in the oil business. Mexico is reopening its oil fields to foreign producers, and the potential is tremendous. Levitt recommends five stocks that stand a good chance of benefiting from the changing political environment south of the border. Topping the list is Exxon Mobil (XOM), whose quest for new oil reserves is never-ending. Mexico would be a nice addition, keeping it at the top of the oil industry.

The big negative when it comes to equal-weight funds, according to its detractors, is that they are unnecessarily expensive when compared to market cap-weighted ETFs. In the case of energy, the Guggenheim S&P 500 Equal Weight Energy ETF (RYE) has an expense ratio of 0.5% compared to 0.18% for the Energy SPDR Fund (XLE). Both funds hold the same three stocks: Exxon, Schlumberger (SLB) and Noble Corp. (NE). Of course, the XLE has them with a combined weighting of 23.59% compared to 6.91% for the RYE.

If you think Exxon’s the play, then you go with XLE. If, on the other hand, you like Noble’s chances, you go with RYE. Either way you’re covered.


Looking for growth at a reasonable price? Dan Burrows has three recommendations of companies whose profits are accelerating while their stocks are selling for bargain-basement prices. Of the three, I like Manitowoc (MTW) the best. MTW has beaten the S&P 500 by 15 percentage points over the past year. For those unfamiliar with Manitowoc, it makes cranes and commercial foodservice equipment — a strange combination which probably contributes to some of the stock’s volatility. It has been mediocre in recent years, but as Dan suggests, it’s cheap and growing.

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