Harness Tesla’s Electricity: ETF Alternatives for Hot Stock Picks

by Will Ashworth | June 10, 2013 1:01 pm

The markets looked headed for a third straight week of losses when Friday’s job report put an end to all the negativity. By week’s end, the S&P 500 had gained 0.8%, and the U.S. economy still appears to be continuing in the right direction.

The second half of 2013 could be very interesting.

As InvestorPlace contributors continue to recommend some single-stock picks, I continue looking at some attractive ETF alternatives:

Tesla Motors

Starting out the week, Jeff Reeves discussed Tesla’s (TSLA[1]) amazing stock ascent since its IPO in June 2010[2], up more than 500% since its pricing. Reeves attributes much of Tesla’s recent share movement to short covering. Even today, it’s short interest is well above 35%, keeping an artificial floor on its stock as short sellers continue to cover their positions.

Jeff’s recommendation to buy its stock on an 8% pullback is a wise one; it can’t continue to climb without a stumble or two. However, sometimes those stumbles never come. To avoid missing out, an ETF alternative makes an awful lot of sense.

It’s hard to believe, but just as many ETFs have Tesla in their top 10 holdings as General Motors (GM[3]). Tesla, of course, benefits from the idea that it’s more a computer with an engine than the other way around. It also benefits from investors looking for the clean energy play. Of the clean energy ETFs, I’m going to go with the First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN[4]), which has Tesla in the top spot at 17.6% of its $48 million in total net assets, making it a fairly direct play for an ETF. At 0.6%, QCLN has one of the the cheapest expense ratios for such a targeted fund.


Traders Reserve recently provided five stock recommendations to take advantage of people spending more money on consumer durables and home renovation[5]. Of the five picks, I especially like Whirlpool (WHR[6]), whose appliance revenues are slowly taking flight as more people raid their credit lines to fix up the kitchen and laundry room after five or more years without as much as a refresh done. This trend will only get stronger as the economy strengthens.

Although I’ve gone to this particular ETF a lot in recent weeks thanks to the housing recovery, I’m going to pick the SPDR S&P Homebuilders ETF (XHB[7]) once more because it holds four out of the five stocks recommended by Traders Reserve in its top 25 holdings, including Whirlpool at 3.4%. Because it’s an equal-weighted fund, all four stocks’ weightings are within 35 basis points of each other. With less emphasis on homebuilders (28% of the portfolio) than other ETFs focusing on housing, it’s a better way to benefit from what’s going on inside the homes as opposed to the homes themselves. Furthermore, at 0.35%, it’s an inexpensive way to play.

Monster Beverage

Many pundits predicted Monster Beverage (MNST[8]) wouldn’t recover following last year’s wrongful death lawsuit on behalf of a 14-year-old girl who died shortly after drinking two cans of its energy drink. James Brumley was the rare exception who felt the furor was overplayed and that its shares would recover[9], which they have, up 38% since mid-November. Fast-forward to today, and Brumley believes investors are once again in love despite a slowdown in MNST sales. While he doesn’t suggest outright selling, he does recommend investors keep a close eye on it. I personally see Monster as a good one to own because Coca-Cola (KO[10]) or PepsiCo (PEP[11]) is going to seal the deal.

Until then, a safer call would be to own the Guggenheim S&P 500 Consumer Staples ETF (RHS[12]), which owns 41 consumer staples stocks, including MNST at a weighting of 2.66%, making it the fund’s fifth-largest holding. Coca-Cola, PepsiCo and Dr Pepper Snapple (DPS[13]) are also held in the fund at slightly smaller weightings. At 0.5%, RHS’ expense ratio is about average for an equity ETF. If you’re like me and think one of the big boys is going to buy Monster someday, this is the best way to benefit from that event. And even if they don’t, you own a solid group of stocks no matter what happens.

Cracker Barrel

On June 5, I discussed the reasons why I thought Cracker Barrel (CBRL[14]) was a better buy than Bob Evans Farms (BOBE[15]). Although Bob Evans’ vertical integration of its sausage business into its restaurants makes a whole lot of sense, Cracker Barrel is simply in better shape as a restaurant chain[16]. Requiring much less work to make money, the time is now for the Tennessee-based restaurant chain.

There’s really only one ETF alternative in this situation — the PowerShares S&P SmallCap Consumer Discretionary Portfolio (PSCD[17]), a subset of the S&P SmallCap 600. With 106 holdings, including Cracker Barrel at 2.39%, it’s an excellent way to participate in growth stocks. At 0.29%, you’re paying very little for a fund that will likely outperform the S&P 500 for years to come. My only wish is that it were equal-weighted as opposed to market-cap-weighted, but that’s a tiny quibble.


It seems everyone except Moody’s wants to give Alcoa (AA[18]) the benefit of the doubt. Aaron Levitt feels AA stock is very cheap despite the aluminum company’s recently downgraded debt. Alcoa is making money[19], which is amazing given how badly aluminum prices have cratered since 2011. Apparently there’s a tremendous oversupply of the metal. Nonetheless, Levitt feels it’s doing a great job cutting expenses; not to mention more of its earnings are being generated from airplane parts and other engineered products as opposed to selling the commodity itself. A value-added approach is definitely the way to go.

The ETF alternative to Alcoa is an easy choice. The SPDR S&P Metals and Minerals (XME[20]) is the only ETF that I know of with Alcoa in its top 10 holdings. As the sixth-largest position and a weighting of 3.65%, the fund’s 38 holdings give you good exposure to the metals industry — albeit to U.S.-based companies, which tend to be smaller than some of their global peers. Its five-year performance is horrendous, but buying now might mean getting in at the bottom of the cycle.

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

  1. TSLA: http://studio-5.financialcontent.com/investplace/quote?Symbol=TSLA
  2. amazing stock ascent since its IPO in June 2010: http://slant.investorplace.com/2013/06/tesla-is-taking-over/
  3. GM: http://studio-5.financialcontent.com/investplace/quote?Symbol=GM
  4. QCLN: http://studio-5.financialcontent.com/investplace/quote?Symbol=QCLN
  5. spending more money on consumer durables and home renovation: https://investorplace.com/2013/06/5-great-stocks-for-the-housing-recovery-hd-low-whr-wms-cree/
  6. WHR: http://studio-5.financialcontent.com/investplace/quote?Symbol=WHR
  7. XHB: http://studio-5.financialcontent.com/investplace/quote?Symbol=XHB
  8. MNST: http://studio-5.financialcontent.com/investplace/quote?Symbol=MNST
  9. shares would recover: https://investorplace.com/2013/06/monster-beverage-surprising-swing-not-all-that-surprising/
  10. KO: http://studio-5.financialcontent.com/investplace/quote?Symbol=KO
  11. PEP: http://studio-5.financialcontent.com/investplace/quote?Symbol=PEP
  12. RHS: http://studio-5.financialcontent.com/investplace/quote?Symbol=RHS
  13. DPS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DPS
  14. CBRL: http://studio-5.financialcontent.com/investplace/quote?Symbol=CBRL
  15. BOBE: http://studio-5.financialcontent.com/investplace/quote?Symbol=BOBE
  16. Cracker Barrel is simply in better shape as a restaurant chain: https://investorplace.com/2013/06/cracker-barrel-or-bob-evans-which-should-you-take-a-bite-of/
  17. PSCD: http://studio-5.financialcontent.com/investplace/quote?Symbol=PSCD
  18. AA: http://studio-5.financialcontent.com/investplace/quote?Symbol=AA
  19. Alcoa is making money: https://investorplace.com/2013/06/is-alcoa-really-junk/
  20. XME: http://studio-5.financialcontent.com/investplace/quote?Symbol=XME

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