ETF Expert

Banks aren’t lending, yet the SPDR Select Financials (XLF) keeps getting investor dollars. Consumers are exceptionally cautious in their consumption, yet SPDR Retail (XRT) continues unfettered.

It’s pure momentum for the time being, and people are snapping up the investments that have been climbing the fastest. They’re exceptionally keen on purchasing fundamentally weak areas in near-term pullbacks.

If you’d rather look for opportunity rather than ride the wave, Q3 earnings should separate true value prospects from the “hot” money; that is, some folks feel that there’s legitimacy for streamlined companies that have actual revenue growth.

So here’s what I did. I employed the Morningstar database to screen for companies with at least $250M in market cap on the following criteria:

1. 20% YOY revenue growth… to show that the company is growing
2. Current Liability/Total Market Cap less than 15%… to show that the company is cash strong, and…
3. A price/sales ratio that is lower than the S&P 500… to demonstrate that the companies in this particular screen may be undervalued relative to the market.

Of the 100 companies that passed this test, only a single real estate investment trust (REIT) made the list for the financial sector, while 5 consumer services/retail claimed a spot. Traditional utilities were noticeably weak with only 2 making an appearance.

It’s not that the leadership itself is shocking. Let’s face it… economic viability in tech, energy and materials companies is a worldwide phenomenon.

Yet the disparity is enormous. It seems to me that the most sensible course of action is to overweight things like iShares GS Networking & Media (IGN), SPDR Materials (XLB) and SPDR Energy (XLE), while underweighting the alternative segments. Or, if you’re still riding the momentum train of financials and consumer services, have a very definitive plan for exiting.

If you’d like to learn more about ETF investing… then tune into ”In the Money With Gary Gordon.” You can listen to the show “LIVE”, via podcast or on your iPod.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

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