Free Annual Reports
Three ETF Value Picks
The S&P 500 earnings yield is currently 8.5%, the highest level in more than 20 years. Value stocks appear to be in vogue once again so I thought I'd look at three value-focused exchange-traded funds, highlighting one or two stocks from each.
IN PICTURES: 10 Tips For Choosing An Online Broker
Three Value Fund ETFs - Earnings Yield
PowerShares Dynamic Small-Cap Value Fund
For each of the funds I'll start with stocks in the top 10 holdings whose earnings yield is higher than the fund itself, which in this case is 8.1%. None of the top 10 has a P/E (earnings yield inverted) below 12.34 so I'll move down the holdings by weighting. Two companies make the cut. Rent-A-Center (Nasdaq:RCII) and Universal American Financial (NYSE:UAM). Of the two, I'd go with Universal American Financial, which paid a special $2 dividend in August to shareholders of record and simultaneously paid down $78 million of its $312 million in bank debt. I like the insurance company's capital allocation choices. As for Rent-A-Center, although it has a much higher earnings yield than competitor Aaron's (NYSE:AAN), I prefer the latter for reasons written about in June.
PowerShares Dynamic Mid-Cap Value Fund
Here we have two companies out of 10 with an earnings yield above 8.8%. Humana (NYSE:HUM) and Computer Sciences (NYSE:CSC). Humana has the higher of the two at 11.8%. It recently announced it was teaming up with Walmart (NYSE:WMT) to offer a national low-cost Medicare Part D prescription drug plan that at $14.80 a month will be the lowest premium for any national standalone plan in the country. It certainly can't hurt to hitch your wagon to the world's largest retailer. As for Computer Sciences, UBS recently mentioned it as a likely leveraged buyout candidate. With a P/E below 10 and plenty of free cash flow, it's easy to see why. While I like Humana, I've already chosen a healthcare plan company in Universal American so I'll go with the global IT consultant. (To learn more, see Understanding Leveraged Buyouts.)
PowerShares Dynamic Large-Cap Value Fund
Three companies fit the bill here and two are energy businesses. The lowest P/E is ConocoPhillips (NYSE:COP) at 9.7, followed by Chevron (NYSE:CVX) and Hewlett Packard (NYSE:HPQ). Anytime you can get a $2.20 a share annual dividend for less than 10 times earnings, it gets your attention. ConocoPhillips earnings are expected to grow substantially in the coming quarters with higher oil prices paving the way. Although I could choose Chevron over ConocoPhillips, the fact that it's still a top holding for Berkshire Hathaway (NYSE:BRK.A) is enough to carry the day. Hewlett Packard and its insecure board were never a factor.
Bottom Line
To recap, my three picks are Universal American, Computer Sciences and ConocoPhillips. In the past five years, these three stocks experienced an average annual loss of 0.5% compared to a gain of 2.1% for the ETFs. I'll bet you the reverse occurs in the next five.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 10 Tips For Choosing An Online Broker
Three Value Fund ETFs - Earnings Yield
|
ETF |
Earnings Yield |
|
PowerShares Small Cap Value Fund (NYSE:PWY) |
8.1% |
|
PowerShares Mid Cap Value Fund (NYSE:PWP) |
8.8% |
|
PowerShares Large Cap Value Fund (NYSE:PWV) |
8.2% |
For each of the funds I'll start with stocks in the top 10 holdings whose earnings yield is higher than the fund itself, which in this case is 8.1%. None of the top 10 has a P/E (earnings yield inverted) below 12.34 so I'll move down the holdings by weighting. Two companies make the cut. Rent-A-Center (Nasdaq:RCII) and Universal American Financial (NYSE:UAM). Of the two, I'd go with Universal American Financial, which paid a special $2 dividend in August to shareholders of record and simultaneously paid down $78 million of its $312 million in bank debt. I like the insurance company's capital allocation choices. As for Rent-A-Center, although it has a much higher earnings yield than competitor Aaron's (NYSE:AAN), I prefer the latter for reasons written about in June.
Here we have two companies out of 10 with an earnings yield above 8.8%. Humana (NYSE:HUM) and Computer Sciences (NYSE:CSC). Humana has the higher of the two at 11.8%. It recently announced it was teaming up with Walmart (NYSE:WMT) to offer a national low-cost Medicare Part D prescription drug plan that at $14.80 a month will be the lowest premium for any national standalone plan in the country. It certainly can't hurt to hitch your wagon to the world's largest retailer. As for Computer Sciences, UBS recently mentioned it as a likely leveraged buyout candidate. With a P/E below 10 and plenty of free cash flow, it's easy to see why. While I like Humana, I've already chosen a healthcare plan company in Universal American so I'll go with the global IT consultant. (To learn more, see Understanding Leveraged Buyouts.)
PowerShares Dynamic Large-Cap Value Fund
Three companies fit the bill here and two are energy businesses. The lowest P/E is ConocoPhillips (NYSE:COP) at 9.7, followed by Chevron (NYSE:CVX) and Hewlett Packard (NYSE:HPQ). Anytime you can get a $2.20 a share annual dividend for less than 10 times earnings, it gets your attention. ConocoPhillips earnings are expected to grow substantially in the coming quarters with higher oil prices paving the way. Although I could choose Chevron over ConocoPhillips, the fact that it's still a top holding for Berkshire Hathaway (NYSE:BRK.A) is enough to carry the day. Hewlett Packard and its insecure board were never a factor.
Bottom Line
To recap, my three picks are Universal American, Computer Sciences and ConocoPhillips. In the past five years, these three stocks experienced an average annual loss of 0.5% compared to a gain of 2.1% for the ETFs. I'll bet you the reverse occurs in the next five.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Will Ashworth
Will Ashworth lives and works in Toronto, Canada. He's worked in and around the financial services industry for much of his adult life. He loves investing and is passionate about helping others learn how to put their money to work.
Free Annual Reports
