Apple? Just a Bite, Please: ETF Alternatives for Hot Stock Picks

by Will Ashworth | July 8, 2013 2:43 pm

Because of the July 4 holiday-shortened week, I’ve lumped together the past two weeks in this regular look at InvestorPlace stock recommendations. In the nine trading days from June 24 to July 6, the S&P 500 gained 2.5% to sit more than 14% in the black for the year. With the economy continuing to improve, our contributors have lots of potential ideas when it comes to stocks. Here are my ETF alternatives:


Are you a rational investor? If you are, Jim Woods argues that Apple (AAPL[1]) should be in your portfolio[2]. Woods thinks Apple is a financial dynamo that will be profitable for years. Investors who bought AAPL in late 2008 are sitting on a gain of about 387%, including the big drop from September 2012. He also suspects rational investors who have owned Apple in the past probably trimmed their holdings as the stock walked itself down below $400. At these prices, he believes Apple is a good long-term buy. I would tend to agree.

Apple is the top holding of the Vanguard Mega Cap Growth Index (MGK[3]) ETF at 6.7% of its $1 billion in total net assets. The fund has 135 large-cap stocks with a median market cap of $76.5 billion. I chose this particular ETF because the tech component, although large at 35.6% of the portfolio, isn’t nearly as domineering as the PowerShares QQQ (QQQ[4]) or some other Nasdaq-related fund. Plus, expenses are a mere 0.12% — on an initial investment of $10,000, that would save you $2,494 in fees over a 10-year period compared to the category average.


In a very timely recommendation on June 25[5], Aaron Levitt wrote about a mid-cap stock that specializes in infrastructure construction and maintenance, including the building of pipelines. The deadly weekend explosion in Quebec[6] of a train carrying oil to a New Brunswick refinery highlights the dangers of shipping oil by train instead of pipeline — and will no doubt ignite the conversation about the Keystone XL pipeline. One major beneficiary of any push toward pipelines is MasTec (MTZ[7]), whose recent spate of acquisitions has made it a player in pipeline construction. Investors have noticed, pushing its stock up 105% in the past 52 weeks.

While Levitt’s pick is an inspired one, it might be wiser to invest in an ETF alternative that counts MasTec among its larger holdings. I recommend the Huntington Ecological Strategy ETF (HECO[8]), an actively managed ETF that invests at least 80% of its assets in ecologically focused companies. MasTec is the fund’s eighth-largest holding with a weighting of 3.11%. The fund itself is very diversified, with investments in nine different sectors including industrials (MasTec), which account for 16.7% of the portfolio. The one big drawback: HECO is only a year old with net assets of just $14.5 million and a management expense ratio of 0.95%. If you can live with all of that, it’s an interesting ETF.

Core Laboratories

InvestorPlace chief technical analyst Sam Collins gave investors a total of six stocks to buy July 1 that were exhibiting positive fundamental and technical characteristics. I would have to go with Core Laboratories NV (CLB[9]) as the pick of the litter[10]. The Dutch-based mid-cap helps oil companies maximize their production rates and ultimate reserves to improve their clients’ return on investment. As the search for oil goes farther afield, CLB’s services become increasingly vital to success in the energy sector. If you follow energy stocks, Core Labs is probably on your radar.

The actively managed WCM/BNY Mellon Focused Growth ADR ETF (AADR[11]) invests in businesses that have benefited from long-lasting global trends, a growing competitive advantage and a superior corporate culture. In addition, the managers are looking for growth at a reasonable price. In existence for three years as of July 20, its performance should make investors take notice. AADR’s annualized return over the past two years through March 31 is 4.7% — 230 basis points higher than its MSCI EAFE benchmark. Core Labs is the sixth-largest holding at 4% of the portfolio. Investors rightfully should be leery of its 1.25% expense ratio. However, its performance makes it worthy of consideration.

Regions Financial

What better way to head into the July 4 holiday than to celebrate companies that generate most of their revenue right here in the United States. InvestorPlace Assistant Editor Alyssa Oursler picked 10 companies from 10 sectors[12] that fit the bill. Of those 10, I’d have to go with Regions Financial (RF[13]). Into the third year of a bank recovery, Regions Financial has done a good job outperforming its regional banking peers. Can it keep up? I think so. Its credit quality has improved and earnings continue to get better every quarter.

The ETF alternative that makes the most sense to me is the PowerShares KBW Bank Portfolio (KBWB[14]), which seeks to replicate the performance of the KBW Bank Index — 24 companies representing leading national money centers, regional banks or thrifts. Regions Financial is the sixth-largest holding at 4.57%, with some of the big banks like JPMorgan Chase (JPM[15]) ahead of it. With a 30-day SEC yield of 1.61% and an expense ratio of just 0.35%, it’s a great way to play the continuing banking recovery.


On July 3, Jeff Reeves discussed a very intriguing business idea that would see Comcast (CMCSA[16]) provide its customers with hotspot access[17] anywhere existing customers have Wi-Fi connections. In Jeff’s example, you could be in Rockville, Md., on a family vacation, and if you’re an existing Comcast customer, you could hop on to the Internet using another existing customer’s router. Clearly, a majority of Comcast customers have reason to worry that this will slow their own Internet speeds. However, if it’s able to solve that little dilemma, this could be a big way to keep its customers from completely cutting the cord.

In this situation, I think you should go with the fund that has the biggest investment in Comcast while also charging a reasonably low expense ratio. In this case, that’s the Consumer Discretionary SPDR (XLY[18]), which has Comcast at a weighting of 6.11%, the third-largest of its 83 holdings. At an annual expense ratio of 0.18%, you’re not going to find too many funds that are both cheap and significantly outperforming the major indices.

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

  1. AAPL:
  2. should be in your portfolio:
  3. MGK:
  4. QQQ:
  5. timely recommendation on June 25:
  6. explosion in Quebec:
  7. MTZ:
  8. HECO:
  9. CLB:
  10. pick of the litter:
  11. AADR:
  12. 10 companies from 10 sectors:
  13. RF:
  14. KBWB:
  15. JPM:
  16. CMCSA:
  17. hotspot access:
  18. XLY:

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