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A Shot of Diageo: ETF Alternatives for Hot Stock Picks

This week we look at small-cap, media, European, tech and real estate stocks

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Morgan Stanley (MS) says there was a 300 million-case wine shortage in 2012. Charles Sizemore discussed the merits of the study in his Nov. 5 article. Sizemore points out that Chinese consumption is the big reason behind the shortfall, although Reuters’ Felix Salmon believes strong production in 2013 will more than offset any slowdown from last year. Either way, Charles is more inclined to invest in a company like Diageo (DEO), whose mega-brands Smirnoff, Johnnie Walker, Captain Morgan, Bailey’s and José Cuervo are some of the best-known in the world. You can’t go wrong with DEO.

Every time I recommend an alcohol stock I’m always lamenting the fact there isn’t an index that covers this very competitive industry. As it is, we’re stuck with the PowerShares BLDRS Europe Select ADR Index Fund (ADRU), which is composed of 100 of the biggest European ADRs available. It holds Diageo at a weighting of 2.22%. Its performance over the past 10 years has been approximately in line with the S&P 500. Although some might still be wary of Europe, I think the worst is behind it. Not to mention the annual expense ratio is a very modest 0.30%.


Qualcomm’s (QCOM) Nov. 6 earnings report offered a weak outlook for Q1 2014. Tom Taulli wondered whether this presented an opportunity to buy the tech giant’s stock at an attractive valuation. Assessing its three pros and cons, Tom decided that the company is well-positioned to benefit from the long-term growth in mobile. Furthermore, with a forward PE ratio of 14 and a decent dividend yield to boot, it’s a great way to play the trend.

It’s never a bad idea to pick an inexpensive ETF. Here, I’m going with the Vanguard Information Technology ETF (VGT), which charges a scant 0.14% annually, and holds QCOM in the top 10 at a weighting of 3.39%. It might not be the 13% weighting Apple (AAPL) gets, but it’s still plenty. It’s important to consider that the VGT has a total of 414 stocks but the top 10 represents 54% of the $4.1 billion in total net assets. You’re definitely betting on the biggest players in tech.


It’s rare you see a win/win situation when it comes to mergers, but the proposed spin-off of Weyerhaeuser’s (WY) real estate company, which will then combine with Tri Pointe Homes (TPH) to form a very formidable home builder, is a great one. Aaron Levitt thinks you should buy WY before the deal is consummated so you can benefit from the real estate combination, not to mention the benefits of owning a pure-play timber company.

When picking an ETF here, you don’t won’t to go too deeply into the timber business. Therefore, I’d go with the PowerShares Active U.S. Real Estate Fund (PSR), which owns a group of 50 stocks selected from the FTSE NAREIT All Equity REIT Index. Weyerhaeuser is the fourth-largest stock with a weighting of 5.3%. Two caveats: It’s unlikely that PSR will hang on to the TPH shares once the merger’s completed because TPH isn’t a REIT. In addition, the expense ratio is high at 0.80%. Other than that, it’s a good way to play the Weyerhaeuser deal.

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

Article printed from InvestorPlace Media,

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