ETF Alternatives for Last Week’s Hot Stocks

Although the first quarter GDP report released on Friday delivered a disappointing growth rate of 2.2%, it seems the U.S. consumer is beginning to spend again. Personal consumption outlays accounted for 93% of the economic growth in the quarter, the biggest contribution in quite some time. This is exactly the kind of news stocks need if they are going to continue to rise.

As I do every Monday, I’ll provide readers who are interested in stocks but unsure which to buy with ETF alternatives to the stocks recommended by contributors during the week of April 23-27.

One of Nancy Zambell’s two picks on Monday was Huntington Bancshares (NASDAQ:HBAN), a mid-cap regional bank based in Ohio. Zambell believes it’s a well-run bank with a decent dividend that should profit in the coming months from a resurgence in financial stocks.

If you believe, as Nancy does, that regional banks are the place to be in the financial sector, the obvious choice is the SPDR S&P Regional Banking ETF (NYSE:KRE), which owns nothing but regionals — and Huntington is its second-largest holding, at 1.92%.

If, however, it’s Huntington you like and not so much the other regionals, you’re better off going with the PowerShares KBW Bank Portfolio (NYSE:KBWB), where Huntington is a top 10 holding, with a weighting of 4.76%. Both funds charge an annual expense ratio of 0.35%.

On Tuesday, Lawrence Meyers was in a playful mood, recommending Mattel (NASDAQ:MAT), the toymaker with popular brands such as Barbie and Hot Wheels. Profits were significantly lower in Mattel’s latest quarter due to slower sales of Barbie and Hot Wheels.

Nonetheless, Meyers sees its stable of brands continuing to generate superior cash flow for many years to come, making its 4% dividend very attractive indeed. While I, too, like the dividend, the toy industry is one of the most mercurial businesses on the planet. Although Mattel’s stock has achieved above-average returns over the years, it’s a business driven by fads.

Furthermore, there aren’t any ETFs where it’s a major part of the holdings. Therefore, I’d recommend going with a consumer discretionary fund such as the Focus Morningstar Consumer Cyclical ETF (NYSE:FCL), which invests in 222 of the best-known consumer brands in America. Although Mattel’s weighting is just 0.71%, the fund’s expense ratio is 0.19%, making it an excellent and inexpensive bet on the continuing recovery of the consumer.

Jeff Reeves made a believer out of me Wednesday when he outlined the reasons investors should buy Coca-Cola (NYSE:KO) prior to its 2-for-1 stock split in August. Stocks tend to perform well after splitting despite there being no economic reason for it.

Just in case you weren’t sold on the stock-split premise, Jeff goes on to suggest why you should own Coke anyway. He’s definitely sold on the big red machine. If there’s a large-cap stock to own, this is it. But not everyone has the same conviction. For those who want to hedge their bet, I suggest you check out the Vanguard Consumer Staples ETF (NYSE:VDC). Like all Vanguard funds, it’s inexpensive at 0.19%. It has a substantial following, with $1.1 billion in net assets, and Coca-Cola is the third-largest holding, with a weighting of 9.7% as of the end of March. If you have a problem owning cigarette companies, however, this has two in its top 10.

One of the highlights of the past week was the news that Pfizer (NYSE:PFE) is selling its baby-food business to Nestlé (PINK:NSRGY) for $11.9 billion. The deal is the largest ever for the Swiss-based company that’s known for its Nesquik chocolate milk. James Brumley reminded investors in his Thursday article that Nestlé is so much more.

While the stock is available only on the pink sheets, its average daily volume is almost 500,000, making it one of the more liquid over-the-counter stocks.  But those with an allergy to pink-sheet stocks will want to consider the SPDR S&P International Consumer Staples Sector ETF (NYSE:IPS), which invests in 71 of the biggest companies in the consumer-staples sector outside of the U.S.

With Nestlé as the biggest holding, at 15.3% of the portfolio, the fund also provides global exposure to a sector known for providing downside protection in lousy markets. Furthermore, with a significant portion of IPS’s assets invested in Europe, you’re buying a very contrarian ETF.

Closing out the week, Hilary Kramer made an exceptionally strong argument for owning e-commerce stalwart eBay (NASDAQ:EBAY), whose business seems to get better and better with age. With Meg Whitman long gone, the PayPal unit continues to drive this bus. Without it, this business wouldn’t have nearly the potential it does.

The only problem I have with eBay is its GSI Commerce segment. GSI never made much money when it was independent, so it will be interesting to see if and how it benefits from being acquired by eBay for $2 billion in 2011.

If you’re not completely sold on eBay, there are several ways to play it the ETF market. While I’m tempted to recommend an Internet-related ETF, instead I’m going to suggest you take a second look at the Focus Morningstar Consumer Cyclical ETF that I mentioned earlier. It’s inexpensive and gives you eBay at a weighting of 2.59%, so it kills two birds with one stone.

The only downside is that FocusShares’ website is so poorly put together, you’ll have a hard time getting a quick understanding without completely reading through the prospectus. It shouldn’t be so difficult, but that’s an aside. The fund itself is first-rate, in my opinion.

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

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