ETF Alternatives For Last Week’s Hot Stocks

by Will Ashworth | February 25, 2013 3:46 pm

All good things must come to an end. Last week, the markets finally finished in the black for the first week all year. The S&P 500 lost 0.3% due to profit-taking prompted by news the Fed is thinking about ending monetary easing sooner than originally planned.

Still, the equity markets appear strong overall — providing lots of stock recommendation ideas for InvestorPlace contributors. Here are my ETF alternatives for several of those picks:

Railway Stocks

When Warren Buffett bought Burlington Northern in late 2009, we knew railways were going to become a more important part of this country’s transportation network. Sure enough, manufacturers of railway cars are doing big business[1] these days, which led Aaron Levitt to recommend both American Railcar Industries (NASDAQ:ARII[2]) and Trinity Industries (NYSE:TRN[3]). Both are having a tough time keeping up with demand and that’s usually a good thing. I’ve personally liked Trinity for some time because of its business diversification[4].

If you want to own both stocks, your best bet is the Guggenheim Raymond James SB-1 Equity ETF (NYSE:RYJ[5]), a collection of 153 stocks, all rated “Strong Buy 1” by Raymond James analysts — meaning analysts expect a company to meet its 12-month price target — and chosen from a group of 700 stocks the firm covers.

Although the fund is equal-weighted, it’s modified to take liquidity into consideration. ARII is the seventh largest holding at 0.80% and TRN is 15th biggest at 0.78%. While the average market cap is $9.6 billion, it does invest a significant portion of its $114 million in total assets in both small- and micro-cap stocks.

Its expense ratio is 0.75% — something to note if fees are a big concern — but its performance over the past five years has been far superior to the S&P 500.


Dan Burrows was busy digesting Walmart’s (NYSE:WMT[6]) fourth-quarter earnings[7] Feb. 21. While they weren’t spectacular and the outlook was sluggish, the company is still managing to grow … even if at a very slow pace. February sales were also slower than usual because the tax refunds for customers normally distributed by the second month of the year are barely trickling out due to the fiscal cliff. By last week’s announcement, they’d returned to normal.

Most importantly, though, Burrows reminded investors that Walmart is raising its quarterly dividend by 18% to 47 cents a share. Yielding slightly less than 3%, investors looking for income will approve of this move.

Although Dan didn’t specifically recommend Walmart, it is one of InvestorPlace’s Dependable Dividend Stocks[8]. Given that discount stocks have underperformed the S&P 500 over the last six months, I think it makes sense to capture Walmart and the rest of its peers.

The easiest and best way to do that is to buy the Market Vectors Retail ETF (NYSE:RTH[9]), which has Walmart as its top holding at 11.5%. Also included in the group of 25 retail stocks is Dollar General (NYSE:DG[10]) at just over 2% and Target (NYSE:TGT[11]) at 5%. Both are part of the six-month chart included in Dan’s article.

If you believe in retail, as I do, this is a great ETF to own. Plus, it’s cheap at 0.35%.

Linn Energy

Aaron Levitt does a great job covering the oil and gas business[12], so when he’s excited about a particular stock in the industry, it’s a good idea to consider it. On Feb. 22, Levitt was all over Linn Energy (NASDAQ:LINE[13]), suggesting its recent price weakness due to a negative Barron’s article about its hedging practices, provided investors with a great entry point. Furthermore, its recent $4.3 billion acquisition of Berry Petroleum (NYSE:BRY[14]) could provide an additional 40 cents in distributable cash flow. Things look so promising Levitt himself was thinking of initiating a position in Linn Energy’s C corporation subsidiary, LinnCo (NASDAQ:LNCO[15]).

Being fairly gun shy when it comes to oil and gas, I’m going to recommend you consider the Guggenheim Raymond James SB-1 Equity ETF I mentioned earlier, which owns both LINE and LNCO. However, if you need a bigger weighting and more importantly, a bigger yield, you might consider the Yorkville High Income MLP ETF (NYSE:YMLP[16]), which has LINE as a top ten holding at 5%. The expense ratio is high at 0.82% but that’s to be expected when dealing with master limited partnerships.

Dividend Stocks

As I mentioned previously, Walmart is hiking its quarterly dividend. Marc Bastow touched on this and other companies increasing their dividends[17] last week, with Coca-Cola (NYSE:KO[18]), Kimberly-Clark (NYSE:KMB[19]) and Texas Instruments (NASDAQ:TXN[20]) also making the list. Especially noteworthy is Texas Instruments’ 33% increase to 28 cents per share, which ups its yield from 2.5% to 3.3%.

Given TXN’s hefty increase, I wanted to find a dividend ETF that shows it some love — and the First Trust NASDAQ Technology Dividend Index Fund (NASDAQ:TDIV[21]) does just that. The fund is a group of over 70 holdings that trade on a U.S. exchange, are involved in technology and/or telecommunications, have a market cap of at least $500 million and have paid a dividend in the last 12 months.

It’s a new fund, only in existence since August 2012, so if you’re looking for a track record, there isn’t one. That being said, it’s got a 30-day SEC yield of 2.76% and its expense ratio is a reasonable 0.50%. Most importantly, TXN is the eighth largest holding at 3.94%. And its ten holding — which account for over 50% of the assets — are solid.

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

  1. railway cars are doing big business:
  2. ARII:
  3. TRN:
  4. business diversification:
  5. RYJ:
  6. WMT:
  7. fourth-quarter earnings:
  8. Dependable Dividend Stocks:
  9. RTH:
  10. DG:
  11. TGT:
  12. oil and gas business:
  13. LINE:
  14. BRY:
  15. LNCO:
  16. YMLP:
  17. increasing their dividends:
  18. KO:
  19. KMB:
  20. TXN:
  21. TDIV:

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