ETF Alternatives for Last Week’s Hot Stocks

by Will Ashworth | December 10, 2012 1:42 pm

The fiscal cliff has taken all the steam out of the markets as roll towards the end of the year — just look at the S&P 500, which closed up an unimpressive 0.13% last week. Until a deal gets done in Washington, the markets aren’t going anywhere.

But despite the apparent standstill, InvestorPlace contributors were still busy finding attractive stocks. If you like them but want to try a safer tactic, consider these ETF alternatives instead:

The Fresh Market

Healthy eating[1] is all the rage these days — precisely the reason why Lawrence Meyers likes The Fresh Market (NASDAQ:TFM[2]), a 128-store competitor to organic grocery leader Whole Foods Market (NASDAQ:WFM[3]).

The Fresh Market went public in November 2010 at $22 per share. It was trading higher than $62 as of Nov. 26, but missed the consensus earnings estimate by 2 cents recently, which knocked the stock down below $50. Despite the readjustment it’s still trading at 39 times earnings — a generous multiple.

Rather than wait for another pullback, you could instead go with the First Trust Consumer Staples AlphaDEX Fund (NYSE:FXG[4]), an ETF that employs both growth and value stock selection to pick constituents from the Russell 1000.

It isn’t cheap at 0.70%, but it does have The Fresh Market in the top 10 at a weighting of 3.73%. There are a total of 38 holdings in the fund with the largest holding — Green Mountain Coffee Roasters (NASDAQ:GMCR[5]) — at 7.14%. Investors should consider this ETF defensive in nature. It likely won’t give you the performance of a consumer discretionary fund, but it likely will reduce your risk.

Freeport-McMoRan Copper & Gold

Dan Burrows had his focus on Freeport-McMoRan Copper & Gold‘s (NYSE:FCX[6]) purchase of both McMoRan Exploration (NYSE:MMR[7]) and Plains Exploration & Production (NYSE:PXP[8]) — two oil companies with big U.S. footprints to go along with its primarily international holdings.

Freeport-McMoRan is hedging its bets[9] on commodity prices with the move. While it’s doubtful the combination of entities will deliver much in the way of savings, it will help with the bottom line.

However, like Freeport-McMoRan, you might want to hedge your bets with the Materials Select Sector SPDR Fund (NYSE:XLB[10]). It’s very cheap at 0.18% annual expense ratio and it has Freeport-McMoRan in its top 10 at a weighting of 6.99%. Chemicals make up 71% of the fund’s holdings, though, so it might not be the ETF for you if you want more exposure to oil and gas.

Streaming Video

Netflix (NASDAQ:NFLX[11]) made a big splash last week when it announced its distribution deal with Disney (NYSE:DIS[12]). John Jagerson and Wade Hansen, editors of SlingShot Trader, believe the winner of streaming video[13] will be the service that gives viewers the shows they want to watch when they want to watch them.

For Jagerson and Hansen, that won’t be Netflix or Amazon (NASDAQ:AMZN[14]), but rather Coinstar (NASDAQ:CSTR[15]), which is teaming with Verizon (NYSE:VZ[16]) to produce its own streaming service while also continuing to use Redbox movie kiosks.

Personally, I don’t think the kiosks are going to mean much in the long-run. Therefore, calling a winner is anything but a cinch. A good alternative is the PowerShares S&P SmallCap Consumer Discretionary Portfolio (NASDAQ:PSCD[17]), which has 105 holdings including Coinstar at 2.10%.

Although it’s a market-capitalization-weighted fund, it’s rebalanced and reconstituted quarterly to avoid any significant overweighting. The annual expense ratio of 0.29% is also very reasonable.


Hilary Kramer, editor of GameChangers, is completely backing away from retail at the moment. She believes all the discounting going on will seriously erode retailer profits in the all-important fourth quarter.

As a result, she’s recommending stocks from other industries[18], including insurance of all places. One would think investors would be hesitant to jump on board after Hurricane Sandy, but Kramer believes in Aflac (NYSE:AFL[19]) and Ameriprise (NYSE:AMP[20]).

I’ve liked both companies for several years and the ETF alternative in this instance is no-brainer. You’ll want to buy the PowerShares KBW Insurance Portfolio (NYSE:KBWI[21]), which has both in the top 10 with Aflac at 7.37% and Ameriprise at 5.01%.

The 24 holdings in the fund represent three-quarters of the market capitalization of the entire U.S. insurance industry. Slightly more than a year old, its expense ratio of 0.35% is reasonable.

Meat Majors

My final ETF alternative comes from James Brumley’s search for the best stock to own[22] from four major meat producers. Ultimately, Brumley came to the conclusion that Hormel‘s (NYSE:HRL[23]) ability to increase revenues while also having an effective cost-mitigation plan in place makes it the best of the bunch.

By purchasing the Guggenheim S&P 500 Equal Weight Consumer Staples ETF (NYSE:RHS[24]), though, you get both Hormel and Tyson Foods (NYSE:TSN[25]) in the top 10 holdings. This ETF replicates the performance of the S&P 500 Equal Weight Consumer Staples Index.

At 0.50%, it’s cheaper than the First Trust fund mentioned earlier. However, the First Trust ETF also holds Smithfield Foods (NYSE:SFD[26]), giving you one additional meat producer. The choice is yours.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

  1. Healthy eating:
  2. TFM:
  3. WFM:
  4. FXG:
  5. GMCR:
  6. FCX:
  7. MMR:
  8. PXP:
  9. hedging its bets:
  10. XLB:
  11. NFLX:
  12. DIS:
  13. winner of streaming video:
  14. AMZN:
  15. CSTR:
  16. VZ:
  17. PSCD:
  18. recommending stocks from other industries:
  19. AFL:
  20. AMP:
  21. KBWI:
  22. the best stock to own:
  23. HRL:
  24. RHS:
  25. TSN:
  26. SFD:

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