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ETFs That Are Overexposed To Companies With Questionable Fundamentals

19 September 2012 at 3:40 pm by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

FedEx (FDX) recently blamed its weak profitability prospects on $4.00 jet fuel, as producers may be opting out of costly air shipments. However, railway transporters don’t expect a bottom line bonanza either. Norfolk Southern (NSC) lowered its earnings outlook on weakness in coal transportation as well as general merchandise; NSC fell as much as 6% in after-hour trading.

For all of the bullish enthusiasm surrounding multi-year highs for the SPDR Dow Jones Industrials Trust (DIA), transporters have failed to confirm the excitement. Corporations that move goods — air, truck, rail or sea — have been ratcheting down forecasts.

The technical picture for ETFs exposed to the sector is somewhat disturbing. Guggenheim’s Shipping (ETF) as well as the more widely known iShares DJ Transportation Fund (IYT) both reside below longer-term 200-day trendlines.

SEA 200

Majesco Eerntatinment (COOL), a software company in the video gaming realm, recently hit a 52-week low on worse-than-expected losses on its earnings report. More noteworthy, Adobe Systems (ADBE) has disappointed on revenue for 3 consecutive quarters. The corporation blamed less-than-anticipated sales numbers of foreign currency exchange rates. (Blame a strong yen or a weak euro?)

One should make note of the fact that iShares North America Tech Software (IGV) has a 6% exposure to Adobe Systems. And while that may not seem like a significant impact, Adobe’s disappointing results may carry over to companies like Intuit and/or Symantec (SYMC). If you own IGV at these levels, you might want to place a stop-limit order near its 50-day moving average.

IGV 50

Israel’s Teva Pharmaceuticals Industries (TEVA) creates, manufactures and sells drug products worldwide. Geopolitical concerns notwithstanding, its cash flow from operations rates particularly low.

Adventurous types might employ the iShares MSCI Israel Fund (EIS) as a means to diversify in the region. However, EIS has 22.5% in TEVA alone; that’s an awfully large commitment to a single corporation if MENA (Middle East North Africa) unrest becomes increasingly violent. (Note: EIS is still below a 200-day moving average.)

EIS 200

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Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc., and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

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