Zeroing In on Big Value Line Winners
Sep 16th 2013 6:32PM
Updated Sep 16th 2013 6:34PM
Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some stocks that have earned Value Line "timeliness" ratings of 1 to your portfolio but don't have the time or expertise to hand-pick a few, the First Trust Value Line 100 ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The First Trust ETF's expense ratio -- its annual fee -- is 0.70%, a bit higher than many ETFs but still lower than the typical stock mutual fund. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.
This ETF has performed reasonably, but it's also very young, with just a few years on the books. It underperformed the S&P 500 in 2008 and 2010, though it beat it substantially in 2007 and 2009. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why Value Line?
Many successful investors have found solid investment ideas among those stocks with top ratings for timeliness by the folks at Value Line. While some shake their head at Value Line's history, others still consult its offerings.
More than a handful of companies that have been rated highly by Value Line had very strong performances over the past year. Rite Aid surged 178% over the past year, as its successful turnaround has progressed, but it's losing prescription market share to Walgreen and carries more debt than competitors, which it has been addressing in part by closing some stores. Still, still, it's posting growth and net gains instead of losses lately, so there is reason to be hopeful. It's also poised to profit from Obamacare, which should deliver more insured Americans demanding more medications. Some think it might end up acquired, but others think that's far from necessary.
Micron Technology soared 146%, successfully adapting to a changing market. The memory giant's acquisition of Japanese manufacturer Elpida has boosted its capacity, its pricing power, and its relationship with Apple. Micron beat expectations for both revenue and earnings in its last quarter, and is downsizing its workforce by about 5% -- but its earnings have recently been in the red, and its margins shrinking. It faces able competition, too, but with its forward P/E is near 11, Micron seems appealingly priced. A recent boon for Micron is a fire at a competitor's plant.
Genworth Financial jumped 109%, in part on second-quarter results that featured earnings up 86% and a strong performance by its mortgage insurance business. Revenue dropped 1.3%, though, and lagged expectations. Genworth has been cutting costs via downsizing, and is poised to benefit from a rebound in housing, as it insures mortgages. Some worry, though, that tightening lending standards may result in less need for its insurance. Bulls like its selling off its wealth management business -- and that it may also exit the long-term care insurance business, too, if it doesn't win rate increases. (Genworth and John Hancock are the two big players left in the business.) Genworth stock looks appealing with its forward P/E ratio under 9, well below its five-year average.
E*TRADE Financial popped 73%, pulling itself out of a slump, but is still well below its pre-financial-crisis levels. Its banking unit is getting healthier, daily average revenue trades are rising, and customer assets are, too. Most folks think of it as a brokerage, but the company is making more money from its banking-related businesses. Bears worry about tough competition and a not-yet-wonderful balance sheet, but others see the stock as attractive.
The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
The article Zeroing In on Big Value Line Winners originally appeared on Fool.com.Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Apple. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.