Have a Small Sip of Starbucks: ETF Alternatives for Hot Stock Picks

by Will Ashworth | September 3, 2013 12:13 pm

The Syrian situation helped to weigh down U.S. stocks, sending the S&P 500 down 1.8% for the final week of August, and overall the markets delivered their worst monthly performance since May 2012.

Despite investor reticence, InvestorPlace contributors still had a few stock recommendations this past week. These ETF alternatives might be a safer way of going about those picks:


Tom Taulli examined the pros and cons[1] of Starbucks’ (SBUX[2]) Aug. 27, and his primary concerns centered on its valuation and competitive landscape. Despite these obvious bugaboos, Tom ultimately ruled in its favor, suggesting the pros outweigh the cons. I gave Starbucks a big thumbs up[3] in July after it announced stellar Q3 earnings and believe SBUX is an elite global brand that will continue to grab market share both in its restaurants and on grocery store shelves. It’s that solid.

The ETF alternative in this instance is a no-brainer. The PowerShares Dynamic Leisure and Entertainment Portfolio (PEJ[4]), which holds 30 top leisure and entertainment names, has SBUX as its top holding with a weighting of 5.26%. Better still, many of PEJ’s holdings are smaller stocks you won’t find in large-cap portfolios. PEJ charges 0.63% in expenses, or $63 for ever $10,000 invested.


Next up are a couple of recommendations[5] from our friends at Zacks: WhiteWave Foods (WWAV[6]) and CST Brands (CST[7]). The former, best known for Silk soy milk and Horizon organic milk, was spun off from Dean Foods (DF[8]) in February. CST Brands was spun off in March from Valero (VLO[9]), and owns gas stations in the southwest U.S. and in eastern Canada. Both of these stocks should do well as standalone companies.

However, my ETF alternative is one that owns neither. The Guggenheim Spin-Off ETF (CSD[10]) is a collection of 24 stocks that have been spun off within the past 30 months and not more recent than six months from the appropriate rebalance date. The Beacon Spin-off Index, whose performance CSD seeks to replicate, last rebalanced on June 14. Neither stock was eligible for inclusion at that point, but both will be eligible for inclusion at its next rebalancing in December. Regardless of whether they are included, this ETF is a performer.


Lawrence Meyers highlighted the positive aspects[11] of the business formerly known as Coinstar but now operating under the totally ridiculous Outerwall (OUTR[12]). I must confess I did a stock screen the other day that brought up several interesting possibilities, including one (Outerwall) I’d never heard of before. I was excited by the prospect of finding a hidden gem … only to be disappointed it was merely Coinstar renamed. Despite a really goofy name, Meyers is correct to label it a winner.

The best alternative in this situation is the Vanguard S&P Small-Cap 600 Growth ETF (VIOG[13]), which seeks to replicate the performance of the 354 growth stocks in the S&P Small-Cap 600. At 0.2%, its annual expense ratio is very reasonable. Outerwall is in VIOG’s top 50 holdings, which include some other very interesting growth stocks I think are worth owning — and thus make VIOG worth holding.


Another goofy name — RetailMeNot (SALE[14]) — was on the mind of Jeff Reeves on Aug. 29. Despite its oh-so-cutesy moniker, SALE makes good money[15] and continues to grow. Its negatives are a sky-high valuation and possible competition from the likes of Facebook (FB[16]) and Google (GOOG[17]). With a strong outlook for the second half of the year, Jeff sees good things ahead for the leader in the digital coupon space.

For those of you not as confident, I’m going off the board recommending the First Trust US IPO Index Fund (FPX[18]), a five-star fund (according to Morningstar) that invests in 100 of the most liquid and best performing U.S. IPOs. Most of these stocks are mid- to large-cap stocks with global business models. Although SALE currently isn’t one of the 100 holdings, it’s possible it will become one in the next couple years. Until then, why not take advantage of an IPO market that appears to be getting stronger by the day?


Finishing off last week’s recommendations is JetBlue (JBLU[19]), a stock Susan Aluise believes is ready to soar[20]. Chief among her reasons is its attractiveness as a takeover candidate. Those odds increase dramatically should US Airways (LCC[21]) and American (AAMRQ[22]) fail to merge. If, on the other hand, the merger goes through, valuable flight slots would come free at Washington D.C.’s Reagan National. Lastly, it’s getting into the premium game on its coast-to-coast flights beginning in Q2 2014. I’ve always liked JetBlue’s business, so hopefully it can fly to new heights.

The most logical ETF alternative in this instance is the SPDR S&P Transportation ETF (XTN[23]), which holds 42 transportation-related stocks that are part of the S&P Total Market Index. Equal-weighted in its composition, Jet Blue is currently 2.96% of the ETFs $53 million in total net assets. Also, XTN’s turnover rate of 25% is very reasonable, as is its low 0.35% in expenses. The XTN is up almost 25% year-to-date, beating the S&P 500 by nearly 7 percentage points. And if you’re leery of airlines, only two are in the top 10.

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

  1. pros and cons: https://investorplace.com/2013/08/should-i-buy-starbucks-stock-3-pros-3-cons/
  2. SBUX: http://studio-5.financialcontent.com/investplace/quote?Symbol=SBUX
  3. a big thumbs up: https://investorplace.com/2013/07/should-i-own-starbucks-3-pros-3-cons/
  4. PEJ: http://studio-5.financialcontent.com/investplace/quote?Symbol=PEJ
  5. a couple of recommendations: https://investorplace.com/2013/08/spin-these-names-into-your-portfolio-investment-ideas-wwav-cst-df-vlo-ta-suss-ptry/
  6. WWAV: http://studio-5.financialcontent.com/investplace/quote?Symbol=WWAV
  7. CST: http://studio-5.financialcontent.com/investplace/quote?Symbol=CST
  8. DF: http://studio-5.financialcontent.com/investplace/quote?Symbol=DF
  9. VLO: http://studio-5.financialcontent.com/investplace/quote?Symbol=VLO
  10. CSD: http://studio-5.financialcontent.com/investplace/quote?Symbol=CSD
  11. positive aspects: https://investorplace.com/2013/08/coinstarouterwall-bullish-no-matter-the-name/
  12. OUTR: http://studio-5.financialcontent.com/investplace/quote?Symbol=OUTR
  13. VIOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=VIOG
  14. SALE: http://studio-5.financialcontent.com/investplace/quote?Symbol=SALE
  15. SALE makes good money: http://slant.investorplace.com/2013/08/retailmenot-sale-stock-groupon-coupons/
  16. FB: http://studio-5.financialcontent.com/investplace/quote?Symbol=FB
  17. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  18. FPX: http://studio-5.financialcontent.com/investplace/quote?Symbol=FPX
  19. JBLU: http://studio-5.financialcontent.com/investplace/quote?Symbol=JBLU
  20. ready to soar: https://investorplace.com/2013/08/3-reasons-jetblue-looks-ready-to-soar/
  21. LCC: http://studio-5.financialcontent.com/investplace/quote?Symbol=LCC
  22. AAMRQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAMRQ
  23. XTN: http://studio-5.financialcontent.com/investplace/quote?Symbol=XTN

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