ETF Alternatives for Last Week’s Hot Stocks

by Will Ashworth | March 26, 2012 9:50 am

The past week — March 19 to March 23 — was only the second negative week for the S&P 500 in 2012. Year-to-date, it’s up 11.1%. Not sure where it’s headed next? Rather than miss out on the continuing rally because of uncertainty, here’s something to consider. I’ve put together some ETF alternatives to stocks recommended by InvestorPlace contributors last week. These ETFs can provide some protection on the downside should the good times abruptly come to an end.

Starting out the week halfway around the world in China, Robert Hsu, editor of the China Strategy newsletter was recommending Huaneng Power (NYSE:HNP[1]), China’s largest publicly listed power company. Hsu’s rationale for buying the stock is the belief that electricity usage in China will continue to grow[2] with future price increases expected to goose revenues and profits. Not only does Huaneng’s business look promising, it currently has a dividend yield approaching 5%, making it attractive for income investors as well.

Investors looking to take advantage of this via an ETF should take a look at the PowerShares Golden Dragon Halter USX China Portfolio (NYSE:PGJ[3]), which consists of U.S.-listed securities doing most of their business in China. With a weighting of 4.31% and an annual expense ratio of 0.70, it’s the best way in my opinion to make a company-specific bet on Huaneng, while benefiting from the other 162 holdings at the same time.

It seems everyone from Warren Buffett to Google (NASDAQ:GOOG[4]) is betting that $5 gasoline will bring solar energy to the forefront[5] once again. Solar energy stocks performed miserably in 2011 but are rebounding so far in 2012.

How to play this? You could go for something like the Market Vectors Solar Energy ETF (NYSE:KWT[6]), which seeks to replicate the Ardour Solar Energy Index and the global solar energy industry. It has a slightly higher exposure to U.S. stocks than the Guggenheim Solar ETF (NYSE:TAN[7]). Both have identical expense ratios at 0.65% annually.

A safer way to own solar is to buy the First Trust Nasdaq-100 Ex-Technology Sector Index Fund (NASDAQ:QQXT[8]), which owns First Solar (NASDAQ:FSLR[9]) at a weighting of 1.58%, along with stocks like Starbucks (NASDAQ:SBUX[10]) and Monster Beverage (NASDAQ:MNST[11]). Granted it’s a big compromise, but it’s also far less volatile.

Midweek, Louis Navellier was busy trying fashion on for size, recommending six stocks[12] including Lululemon (NASDAQ:LULU[13]) and Nike (NASDAQ:NKE[14]). The latter announced earnings the next day, and except for the slight margin compression expected in 2012, they were reasonably solid.

Of the six stocks Navellier recommended, the one that stands out for me is Luxottica (NYSE:LUX[15]), simply because it’s so different from the rest. The other five all primarily sell softlines whereas Luxottica’s all about eyeglasses and sunglasses. I’ve always liked the way it buys brands like Ray-Ban and Oakley, and works them into its bread-and-butter Lenscrafters operation. It generates consistent, stable growth.

To get Luxottica and some additional geographic diversification, the Guggenheim Equal-Weighted Euro-Pacific LDRs ETF (NYSE:EEN[16]) is the way to go. Luxottica’s weighting is currently 0.94%, which is about as high a weighting as you’re going to find. The U.K. and Japan account for 44% of its holdings. Italy, which is Luxottica’s home base, is not represented in the top 10.

On Thursday, Tom Taulli was wondering what would become of Monster Worldwide (NYSE:MWW[17]) now that it’s officially considering selling itself to the highest bidder[18]. With the stock up handsomely since late February, Taulli figures the big gains have already been made. The likeliest candidates to bid are private equity firms looking to buy low, wring some efficiencies out of it and then resell two or three years later.

The best ETF in this instance would be the PowerShares Morningstar StockInvestor Core Portfolio (NYSE:PYH[19]), which counts Paychex (NASDAQ:PAYX[20]) and Automatic Data Processing (NYSE:ADP[21]) among its 50 holdings. Both companies act as proxis for the overall labor market because of the work they do processing payroll. It’s a bit of a stretch from Monster Worldwide. The other possibility is to buy the PowerShares Global Listed Private Equity Portfolio (NYSE:PSP[22]), but that’s an even bigger stretch.

What better way to end the week than with the Dividend Growth Investor discussing the additions to the Dividend Achievers Index in 2012[23]. To make this list, a company must have increased its dividend annually for at least 10 years. Two companies I favor made the list this year: Nike and Valmont Industries (NYSE:VMI[24]). The ETF alternative in this instance is a slam dunk with the PowerShares Dividend Achievers Portfolio (NYSE:PFM[25]), which replicates the returns of the U.S. Broad Dividend Achievers Index. Created by Indxis, the fund has excellent sector diversification at a reasonable 0.61% annual expense ratio. If dividends are your thing, this will definitely do the trick.

As of this writing, Will Ashworth did not own a position in any of the stocks named here. 

  1. HNP:
  2. electricity usage in China will continue to grow:
  3. PGJ:
  4. GOOG:
  5. $5 gasoline will bring solar energy to the forefront:
  6. KWT:
  7. TAN:
  8. QQXT:
  9. FSLR:
  10. SBUX:
  11. MNST:
  12. recommending six stocks:
  13. LULU:
  14. NKE:
  15. LUX:
  16. EEN:
  17. MWW:
  18. selling itself to the highest bidder:
  19. PYH:
  20. PAYX:
  21. ADP:
  22. PSP:
  23. additions to the Dividend Achievers Index in 2012:
  24. VMI:
  25. PFM:

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