ETF Alternatives for Last Week’s Hot Stocks

by Will Ashworth | February 4, 2013 2:29 pm

The markets are beginning to sound a lot like a broken record, but one you don’t mind hearing over and over again. The S&P 500 moved up 0.7% for the five days of trading between Jan. 28 and Feb. 1, putting the index up 6.1% year-to-date. Meanwhile, the Dow Jones Industrial Average finished above 14,000 for the first time since October 2007.

These are heady times for stocks, and InvestorPlace contributors were more than ready with some bullish stock recommendations last week. Here are my ETF alternatives to those picks:


Timber is big business, and there’s no one larger in that regard than Weyerhaeuser (NYSE:WY[1]), which owns 6 million acres in the U.S. and manage another 14 million in Canada. As Aaron Levitt points out in his Jan. 29 article[2], owning timberland “is a game of patience.” As forest lands continue to rise in value, investors get a cash flow machine able to generate revenue and earnings streams from several sources. Long-term, this type of business is a winner.

The best ETF alternative in this instance is an easy choice. Weyerhaeuser is the top holding of the iShares Global Timber & Forestry ETF (NASDAQ:WOOD[3]), a group of 27 companies participating in the global paper trade. Several of the top holdings are REITs, providing investors with a 30-day SEC yield of 2.33%. In existence since June 2008, WOOD’s top 10 holdings represent 55% of its $267 million in assets. If you believe that owning timber is a great hedge against inflation, WOOD is the ETF for you.


Last week’s Tuesday session wasn’t very kind to tech stocks[4]. A day after the wreckage, Tom Taulli pointed out three stocks that got hit hard, but maybe didn’t deserve it: Sourcefire (NASDAQ:FIRE[5]), Seagate Technology (NASDAQ:STX[6]) and Zynga (NASDAQ:ZNGA[7]).

That last one seems risky compared to the rest of the trio, but Taulli reminds us that Zynga’s $1.35 billion in cash gives it plenty of time to fix its problems and introduce a business based on real-money gambling. It’s a contrarian pick, for sure, but if it righted the ship, the payoff would be tremendous.

Therefore, I’m going to recommend the Global X Social Media Index ETF (NASDAQ:SOCL[8]), which seeks to replicate the performance of the Solactive Social Media Index. The industry continues to grow as businesses and emerging markets adopt social media at an impressive pace. Zynga’s weighting is 3.43%, which gives you decent representation should its turnaround happen. If not, the top 10 holdings (Zynga’s not one of them) include familiar businesses like Facebook (NASDAQ:FB[9]) and Google (NASDAQ:GOOG[10]). At an annual expense ratio of 0.65%, it’s not cheap, and its performance since inception hasn’t been great. But in recent months, it has done fine, and it too should be a winner in the long-term.

Dynavax Technologies

Leading up to the Super Bowl, betting was on the mind of James Brumley, who provided investors with three high-risk/high-reward stocks[11] to take a flyer on instead of the game itself. Of Brumley’s three picks, I’m focusing on Dynavax Technologies (NASDAQ:DVAX[12]), which could get the approval for its hepatitis B immunization drug Heplisav on Feb. 10.

FDA approvals are tough to come by, and this one’s too close to call. A safer way to play this biotech stock is to buy the SPDR S&P Biotech ETF (NYSE:XBI[13]). The XBI is based on a modified equal weight index, which means it’s rebalanced quarterly, although not necessarily to an equal-dollar amount. Dynavax’s weighting as of Feb. 1 is 2.78%, making it the fifth-largest holding of 51 stocks. The top holding is Isis Pharmaceuticals (NASDAQ:ISIS[14]) at 3.5%, while the lowest is Enzon Pharmaceuticals (NASDAQ:ENZN[15]) at 0.22%.

With total net assets of $742 million, 7.8 million shares outstanding and 184,000 shares traded daily, it’s liquid enough. It has outperformed the S&P 500 during the past five years and should continue to do so for the foreseeable future. At 0.35%, it’s a smart, inexpensive way to bet on Dynavax.

Waste Management

On Jan. 31, Johnson Research Group discussed the various pros of owning Waste Management (NYSE:WM[16]). Atop the list of reasons was that WM’s Feb. 14 earnings report should provide some reasonably positive fundamentals that will push its stock through the $32-$35 level, where it has sat for some time. With a high short interest[17], any good news is likely to send the shorts scurrying for the exits, and with zero analysts recommending its stock, once the good news arrives, an upgrade or two could be in order.

While waste management isn’t trendy, it is profitable, and I like the arguments put forth for owning Waste Management at these levels. Therefore, I’d go with the Van Eck Market Vectors Environmental Services ETF (NYSE:EVX[18]), which is 22 companies involved in the environmental services industry, including a nearly 10% weighting in Waste Management. The top 10 holdings represent 65% of the fund’s $19 million in net assets. The big downside here is the liquidity with less than 1,000 shares traded daily.

Although EVX has underperformed the S&P 500 by a marginal amount over the past five years, I see it outperforming over the next five — starting with a good earnings announcement in a few days.

First Cash Financial Services

Closing out the week, Lawrence Meyers was interested in six companies benefiting from debt Americans owe[19]. The usual suspects — Visa (NYSE:V[20]) and Mastercard (NYSE:MA[21]) — are mentioned, as well as some not-so-obvious candidates.

Of the group, I have to say I find First Cash Financial Services (NASDAQ:FCFS[22]) the most interesting. It operates pawn shops and cash advance stores in both the U.S. and Mexico; revenues from the latter accounted for 54% of overall sales in 2012. The driver of its growth is pawn shop operations south of the border. FCFS has had an incredible run, with positive total returns in 10 of the past 11 years and 7.8% gains from the start of the year through Feb. 1.

Rather than recommend some sort of financial services ETF that holds a tiny piece of FCFS, I’m going to choose something completely different. In this situation, I like the Van Eck Market Vectors Latin America Small-Cap Index ETF (NYSE:LATM[23]), an ETF focused on small caps in Latin America. With 147 holdings, First Cash Financial Services is the ninth-largest position at 1.59%.

I believe Latin America will continue to thrive; an investment in LATM allows you to benefit from both FCFS’s growth while also riding Latin America’s emergence as an economic powerhouse. Of all the ETFs I’ve recommended, this is my favorite.

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

  1. WY:
  2. points out in his Jan. 29 article:
  3. WOOD:
  4. tech stocks:
  5. FIRE:
  6. STX:
  7. ZNGA:
  8. SOCL:
  9. FB:
  10. GOOG:
  11. high-risk/high-reward stocks:
  12. DVAX:
  13. XBI:
  14. ISIS:
  15. ENZN:
  16. WM:
  17. high short interest:
  18. EVX:
  19. six companies benefiting from debt Americans owe:
  20. V:
  21. MA:
  22. FCFS:
  23. LATM:

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