ETF Alternatives for Last Week’s Hot Stocks

by Will Ashworth | February 19, 2013 12:32 pm

The S&P 500 had another positive five-day stretch last week, making it the seventh consecutive week of gains for the index. However, last week’s gains weren’t anything to crow about, with the S&P 500 improving just 0.12% between Feb. 11-15.

Still, retail investors continue to jump back into the market, and stocks keep jumping, helping to fuel a broader bullish environment and some InvestorPlace recommendations. Here are my ETF alternatives to some of those picks:


After looking at the pros and cons[1] of Wendy’s (NASDAQ:WEN[2]) on Feb. 11, Tom Taulli came to the conclusion that the burger joint was worth buying. His two strongest arguments: First, CEO Emil Brolick was the former COO of Yum Brands (NYSE:YUM[3]) for three years until he took the helm at Wendy’s in September 2011. Second, activist investor Nelson Peltz owns 26% of the company — and although he sold most of his Heinz (NYSE:HNZ[4]) shares in the high $50s prior to last week’s $72.50 offer for the company, Peltz still knows a good thing when he sees it.

Wendy’s hasn’t exactly been a top buy of money managers in recent years. As a result, there aren’t any alternatives that provide a significant weighting. The PowerShares Fundamental Pure Small Core Portfolio (NYSE:PXSC[5]) is a fund that’s based on fundamentals rather than market cap, which is a good thing in my eyes. PXSC takes the 2,500 largest companies in the U.S., rates them on sales, earnings, book value and dividends, then weighs them accordingly. The top 462 are included in the fund, which is rebalanced quarterly and reconstituted annually. Although Wendy’s weighting is just 0.55%, that’s only 16 basis points from inclusion in the top 10 holdings.

This is a great ETF if you like smaller — but not too small — companies.

Michael Kors

On Feb. 12, Alyssa Oursler highlighted the five reasons Michael Kors (NYSE:KORS[6]) keeps delivering boffo sales and profit growth[7]. You would have to be living under a rock not to be familiar with its growth story. Its same-store sales in the third quarter grew 58% in Europe and 41% in North America. No one is touching those numbers at the moment, and while there’s always the potential for them to come to a screeching halt, these things usually take several quarters, if not years.

Less than 45% of Michael Kors’ outstanding shares are held by institutions, compared to 85% or more at Tiffany (NYSE:TIF[8]) and Coach (NYSE:COH[9]). The opportunity to own it before the institutions pile in is available for the taking. Unfortunately, to do it, your best option is the First Trust ISE Chindia Index Fund (NYSE:FNI[10]), which seeks to replicate the performance of the ISE Chindia Index. This ETF weighs companies by liquidity, investing in the top 25 companies in each country. The top three are weighted at 7%, the next three at 4%, the next three at 2%, and the remaining 16 are equally weighted. At present, Michael Kors is the top holding with a weighting of 8.29%.

If you’re interested in investing in this ETF, it’s important to keep in mind that it’s extremely volatile. I wouldn’t bet the farm.

Hain Celestial

Lawrence Meyers hit on the idea February 12 that the money to be made[11] in the grocery store business isn’t in retailing, but rather in the stocks of companies who provide the products to those grocers — either as distributors or manufacturers. One company to benefit from this life lesson is Hain Celestial Group (NASDAQ:HAIN[12]), which generates almost 20% of its sales from United Natural Foods (NASDAQ:UNFI[13]), the primary distributor for Whole Foods Market (NASDAQ:WFM[14]).

Hain Celestial is a growing company whose stock has outperformed the S&P 500 over every period of time, whether it’s 15 years, five years or year-to-date. It’s a keeper.

The ETF alternative in this instance is a no-brainer. The PowerShares S&P SmallCap Consumer Staples Portfolio (NASDAQ:PSCC[15]) invests in 22 smaller companies, all of whom provide consumer staples. Hain Celestial is its top holding with a weighting of 12.62%, 261 basis points higher than Casey’s General Stores (NASDAQ:CASY[16]), its second-largest holding. Also in the top 10 are several companies I admire, including J&J Snack Foods (NASDAQ:JJSF[17]) and Boston Beer (NYSE:SAM[18]). Best of all, its management expense ratio is very palatable at 0.29%.  

Buffalo Wild Wings

We’re less than a month removed from Super Bowl Sunday, Buffalo Wild Wings’ (NASDAQ:BWLD[19]) biggest day of the year[20]. Prior to the big day, I wrote an article advising investors to watch BWLD’s international expansion carefully because its success is far less certain than its domestic operations. Kyle Woodley followed that up Feb. 14 with a generally favorable opinion of BWLD’s investment prospects[21], though he was somewhat concerned about the minimum wage argument as well as the cost of chicken wings eating into profits. Long-term, we’re both singing from the same hymnal — it’s a buy.

Once again, my ETF alternative comes from Invesco, with the PowerShares S&P SmallCap Consumer Discretionary Portfolio (NASDAQ:PSCD[22]), a group of 107 holdings that is a subset of the S&P SmallCap 600. BWLD is the 14th-largest holding at 1.71% of its $66 million in total net assets. I like this ETF a lot. If you were investing in some of its other holdings over three to five years, I’d personally recommend at least half of them. For this reason — and the fact its expense ratio is only 0.29% — PSCD makes a really smart way to play B-Dubs.

Gambling Stocks

It appears that the legalization of online gambling in this country is becoming more likely every day. New Jersey Gov. Chris Christie is the latest government leader to jump on the bandwagon. And why wouldn’t he? The tax revenues in a state like New Jersey would be huge. On Feb. 15, Jim Woods highlighted some of the gaming companies that could benefit[23] when it becomes reality.

Clearly, any casino operator with licenses in multiple states will benefit greatly, as will providers of technology that makes it happen. Your ETF alternative should have a sprinkling of both.

While this might change in the future, your only option at this point is the Market Vectors Gaming ETF (NYSE:BJK[24]), which owns all of the stocks mentioned by Woods with the exception of Caesars Entertainment (NASDAQ:CZR[25]) and Zynga (NASDAQ:ZNGA[26]). If you’re a fan of Sheldon Adelson, Las Vegas Sands (NYSE:LVS[27]) and Sands China (PINK:SCHYY[28]) are its two biggest holdings, representing slightly more than 16% of BJKs assets.

I wouldn’t buy this ETF, but then, I’m not a fan of gambling. If you believe online gaming is a done deal, this is the way to the promised land.

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

  1. pros and cons:
  2. WEN:
  3. YUM:
  4. HNZ:
  5. PXSC:
  6. KORS:
  7. boffo sales and profit growth:
  8. TIF:
  9. COH:
  10. FNI:
  11. money to be made:
  12. HAIN:
  13. UNFI:
  14. WFM:
  15. PSCC:
  16. CASY:
  17. JJSF:
  18. SAM:
  19. BWLD:
  20. biggest day of the year:
  21. investment prospects:
  22. PSCD:
  23. some of the gaming companies that could benefit:
  24. BJK:
  25. CZR:
  26. ZNGA:
  27. LVS:
  28. SCHYY:

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