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Nine Beaten-Down ETF Investment Bargains

Companies / Investing 2010 May 27, 2010 - 08:47 AM GMT

By: Ron_Rowland

Companies

Best Financial Markets Analysis ArticleIn case you haven’t noticed, most of the world’s stock markets took a hard fall the last few weeks. Exchange traded funds (ETFs) got walloped, too.

Is the selling over? Perhaps.


But even if we see a strong economic recovery, it doesn’t mean stocks are ready to come roaring back.

Nevertheless, the stock market will find a bottom sooner or later. And I think it’s a good idea to keep your eyes on ETFs to buy when they’re down. Just as markets can get irrationally exuberant, they can also get unduly pessimistic. This gives you an opportunity for profit.

A couple of weeks ago I talked about Greece, Europe and ETFs and some of the bargains that could become available once that part of the world hits rock bottom. Today I’m going to tell you about some beaten-down sector ETFs you may want to add to your watch list.

Beaten-Down ETF #1: Market Vectors Solar Energy (KWT)

Beaten-Down ETF #2: Claymore/MAC Global Solar Energy (TAN)

Back when crude oil was trading above $100 a barrel (at one point to almost $150!), solar energy stocks were hot, hot, hot. While reality may not have matched the hype in some cases, there was good reason to be bullish. The world was running out of oil — or so they thought.

Unfortunately for some sectors, the worldwide economic downturn has pushed old-fashioned fossil fuel prices down sharply. Consequently, the potential savings, present and future, are not nearly so great now.

Solar energy was a hot sector when energy prices were high.
Solar energy was a hot sector when energy prices were high.

ETFs that focus on this niche have been burned the last few months. Both KWT and TAN are off more than 45 percent since early January and 77 percent from their levels of two years ago. They may fall even more. But the values are starting to look tempting even to a momentum-oriented guy like me.

Beaten-Down ETF #3: First Trust ISE Global Wind Energy (FAN)

Beaten-Down ETF #4: Market Vectors Nuclear Energy (NLR)

Beaten-Down ETF #5: Market Vectors Global Alternative Energy (GEX)

Beaten-Down ETF #6: PowerShares WilderHill Clean Energy (PBW)

Beaten-Down ETF #7: PowerShares Global Wind Energy (PWND)

Solar isn’t the only alternative energy source. There’s also wind, nuclear, geothermal, and various other technologies in development. Several ETFs try to cover this group, and some have gotten trounced!

FAN and PWND, for example, have lost a third of their value since early January. They’ve fallen for the same reason as the solar ETFs mentioned above.

Another factor: For the most part, the pure-play stocks in alternative energy are small-cap companies. This means they’re more volatile even in the best of times. When buyers go on strike, speculative small-cap stocks get slaughtered. And so do the ETFs that hold them.

Beaten-Down ETF #8: Market Vectors Steel (SLX)

Steelmaking is a brutally competitive industry. At one time the U.S. was the global leader, but times have changed. A big reason is the astonishing growth in Asia, particularly China. All those shiny new buildings, roads and airports need a lot of steel parts.

Cities are built from steel.
Cities are built from steel.

The downside, of course, is that demand for steel tends to decline once the infrastructure is in place. And recession only aggravates the problem.

Another issue is that places like China are now developing their own steel manufacturing base. That means less need for imports — and bad news for the foreign companies that supplied those imports.

Many of these companies can be found in the SLX portfolio. No wonder, then, that SLX is off more than 28 percent in the past eight weeks. My guess is that steel will be a little slower to come back than many other sectors, but we could still see a big bounce in SLX at some point.

Beaten-Down ETF #9: Market Vectors Agribusiness (MOO)

If any business is recession-proof, you might think it would be food. We all need to eat.

Indeed, but we have choices about what we eat and where it comes from and how it is produced. The choices people make can have a big impact on this sector. Companies like fertilizer makers, farm equipment manufacturers, and food distributors can be just as volatile as anything else.

Agriculture is big business.
Agriculture is big business.

MOO shares dropped from the $47 area as recently as January to a low near $36 earlier this month — losing more than 21 percent of their value. This same ETF traded down below $20 in 2008, so it could easily decline further. At some point, though, I think MOO will be a great buy.

Keep Your Eyes Open!

Please be clear: I am NOT recommending anyone buy any of these ETFs right now. I don’t know where the bottom is, but my best guess is we haven’t seen it yet.

My point is that these are some interesting sector ETFs that have fallen hard. Whenever they come back, the upside could be substantial. So add these tickers to your watch list and wait for your chance.

Best wishes,

Ron

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


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