While the brazen murder of a major UHC executive may have some of us all a little unnerved, investors continue to pile into stocks with reckless abandon. With the Dow above 45,000 and the S&P 500 at a new record high, so many investors are “all in” on get-rich-quick schemes that they’re speculating on stocks like MicroStrategy (MSTR) while the CEO compares the value of bitcoin to the ability to teleport buildings on Fox News.

Need more signs that we’re in another stock market bubble? I don’t.

But, I do have good news. Plenty of good investment opportunities remain for those willing to do the work. Our analyst team just analyzed nearly 3,000 10-Ks and 10-Qs and updated our company models with 3Q24 earnings data. These updates affect our Stock Ratings, which drive fluctuations in our Sector Ratings.

In our recent training, Decoding Q3 Earnings: The Investor’s Guide to Finding Tomorrow’s Winners Today, we highlighted the two hottest sectors in the market post-election. The highest rated sector from that training was, and remains, the Energy sector.

The other sector we featured during the training earns an Attractive rating. It recently supplanted the Financials sector to become our 2nd highest rated sector. Despite its Attractive Rating, this sector contains many unattractive stocks. To find the diamonds in the rough, we leverage our forward-looking fund research to analyze the holdings of funds with the kind of diligence usually available only on individual stocks.

After scouring our database of ~10,000 stocks, ETFs and mutual funds, we’re featuring a Very Attractive ETF in an Attractive rated sector.

The information below comes from the recent Long Idea report on this sector and ETF, available to Pro and Institutional members. And, you can buy the full report a la carte here.

You need a Professional Membership or higher to view all the content on this page.

Already a member?

Learn more about our research here.

A Very Attractive Sector ETF With Quality Holdings

This sector, traditionally a more defensive play, was upgraded to Attractive around the same time the Financials sector was downgraded to Neutral, as noted above.

Should the high-flying valuations of some of the most popular names (tech, meme stocks, zombie stocks) return to earth, this sector could provide a relative safe haven. Amidst ongoing geopolitical tensions, tariff uncertainty, and a new presidential administration, there’s value to be had in the consistent profits, cash flows, and dividends in this sector.

Specifically, this ETF offers exposure to this profitable sector, which holds less valuation risk than the overall market, without buying individual stocks. Our analysis of each of the holdings of the ETF and the S&P 500, reveals the ETF allocates to more profitable companies with cheaper valuations than SPY. The ETF earns our Very Attractive Predictive Fund Rating, while SPY earns an Attractive rating.

Per Figure 1 in the full report, this ETF allocates 5% of its assets to stocks rated Very Attractive compared to just 1% for SPY. On the flip side, the ETF allocates only 26% of its assets to stocks rated Unattractive-or-worse compared to 38% for SPY.

This ETF Provides Better Risk/Reward Than the Market

This ETF’s holdings are mostly highly profitable companies. Of the 38 holdings we cover:

  • 100% have a positive ROIC,
  • 87% have a positive 2-year average FCF yield,
  • 71% have a market-implied GAP of 49 years (sector average) or less, and
  • 84% have a positive PEBV ratio of 2.7 (sector average) or less.

Figure 2 in the full report contains our detailed rating for the ETF, which includes each of the criteria we use to rate all ETFs. These criteria are the same for our Stock Rating Methodology, because the performance of an ETF’s holdings is responsible for the performance of the ETF. Figure 2 also compares the ETF’s rating with that of SPY.

The ETF’s holdings are equal or superior to SPY in four of the five criteria that make up our Portfolio Management rating. Specifically:

  • the ETF’s holdings have a Positive Economic Earnings vs. EPS rating, same as SPY,
  • the ETF’s FCF yield of 3% is higher than SPY at 2%,
  • the PEBV ratio for the ETF is 2.2, which is much lower than SPY’s at 4.4, and
  • our discounted cash flow analysis reveals an average market-implied GAP of 47 years for the ETF’s holdings compared to 74 years for SPY.

Market expectations for stocks held by the ETF imply profits will grow half as much as the stock’s held by SPY (measured by PEBV ratio). In other words, the ETF’s profitability is similar (measured by economic earnings), yet the stocks held by the ETF are significantly cheaper (as measured by PEBV and GAP).

….there’s much more in the full report. You can buy the report a la carte here.

Or, become a Professional or Institutional member – they get all Long Idea reports.