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Market Overview

Recovery Investing: Three ETFs to Consider


Last week the Labor Department reported an unemployment rate above 10% for the first time since the early-1980s.  The market seemed unconcerned, closing with a gain on the day the numbers came out.  Plenty of people seem to think the worst is behind us.  After all, if government reports are to be believed, the Great Recession ended last quarter.

What should investors do if the market is turning around?  There’s still plenty of upside potential before we hit October 2007 highs.  Two sectors that performed well the past 52 weeks and are poised to continue moving upward in a recovering economy are Technology and Consumer Discretionary.  To move finished goods to market requires the Transportation Industry.  Let’s take a closer look.

Technology has enjoyed a nice run in recent months.  Some of the biggest winners have been storage makers Western Digital (WDC) and SanDisk (SNDK).  This may suggest companies are building their digital infrastructure. Salesforce (CRM) has also been capturing market share in the small business and enterprise markets.  However, the mover with the most press has been Apple (AAPL).  Fortune just named Apple’s Steve Jobs as CEO of the Decade. To buy into the Tech trend, consider: iShares Dow Jones U.S. Technology Sector Index Fund (IYW).

Consumer Discretionary has done well too, buoyed by surprising stocks like Ford (F) and AutoNation (AN).  No doubt Cash For Clunkers and other such programs helped boost these companies, but automotive stocks aren’t the only reason Discretionary has outperformed.  Internet businesses like Priceline (PCLN), Amazon (AMZN), and Expedia (EXPE) have also helped the sector flourish.  Their streamlined business models and good management have helped them grow while other companies struggle.  The easy way to buy into Discretionary is with an ETF: Vanguard Consumer Discretionary ETF (VCR).

One final area to consider is transportation.  Lower fuel prices (as compared to a couple of years ago) and a rebounding economy are putting the transports back on track.  Warren Buffett’s purchase of Burlington Northern (BNI) shows he sees good value in the sector.  As global trade recovers, more and more goods will be shipped back and forth – money in the bank for efficient transportation providers.  iShares Dow Jones U.S. Transportation (IYT) is one way to buy the whole sector in one trade.

Is economic recovery guaranteed?  No, far from it.  But if the economy bounces back these should be some of the leaders.  Check them out.

Disclosure compliant with FTC 16 CFR Part 255 covering writer, editor, and publisher: Long IYW and AAPL.  No positions in any of the ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.


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