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Use ETFs to Stuff Yourself Full of Blue Chips

This week we look at conglomerates, energy, construction, large cap, and consumer services stocks.

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The best ETF to capture Manitowoc is the PowerShares Dynamic Building & Construction Portfolio (PKB), which invests in 30 companies involved in building and construction in the U.S. Manitowoc is weighted at 2.43%. With home construction doing better, it’s a good way to ride the momentum and play Manitowoc at the same time. Just be aware that PKB’s expense ratio is moderately high at 0.63%.


I must admit I have a hard time arguing with anything Jonathan Berr had to say Oct. 10 in support of owning Costco (COST). There are retailers … and then there’s Costco. Its business model is so simple, and yet no one seems to be able to duplicate it. Yes, its earnings weren’t stellar this past quarter, but whose were? Same-store sales increased 5%, 380 basis points higher than Target (TGT), whom I consider to be a pretty strong retailer. I agree with Jon — Costco is a stock to buy, put in a drawer and forget about.

For those of you not 100% sold, buy the Columbia Select Large Cap Value ETF (GVT), an actively managed fund that invests in 36 of the best stocks from the Russell 1000. Costco, at 2.35%, is one of four retailers in the fund. Because it’s actively managed, the expense ratio of 0.79% isn’t outrageous. However, GVT has returned 18.5% annually since inception in May 2009, and this year, it’s up 25.5% — 366 basis points greater than its Russell 1000 Value benchmark.

Yum Brands

Tom Taulli wrote Oct. 10 that Yum Brands (YUM) shows few signs of coming out of its tailspin anytime soon. That’s not surprising. Twice in the past 16 months I’ve written about the nasty odor that emanates from its business strategy. It threw its U.S. franchisees under the bus for a big payday in China, and now that the plan’s failing miserably, it has little ammunition left in its arsenal. Furthermore, investors realize that a slower-growth Chipotle Mexican Grill (CMG) is still a better stock to own.

However, if you must own this miserable excuse for a stock — I’m embellishing just a tad — at least have the good sense to surround it with some better stocks. The iShares U.S. Consumer Services ETF (IYC) has a top 10 holdings list (38% of portfolio) containing some of the best brands anywhere. Yum is weighted at 1.24% (187 holdings), so it can’t do too much damage should its misery continue for an extended period of time.

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

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