Everyone has their way of analyzing exchange traded funds (ETFs) for their portfolio. Morningstar analyst Jeffrey Ptak looks at ETFs in a different light than most. He views them as individual stocks, checking fair values of companies within an ETF against the share price, reports Jesse Emspak for Investor’s Business Daily. An ETF tracking a bruised sector has the potential to be a good buy, especially if one sees them as individual stocks and utilizes them in the same way.
One reason for the undervaluing can be due to the sub-prime mortgage crisis. ETFs whose assets are concentrated in a few large stocks that were affected by the crisis could fit into this scenario. For example, KBW Bank ETF (KBE) is undervalued with a price-to-fair-value ratio of 0.76. Regional Bank HOLDRs (RKH) and iShares Dow Jones U.S. Regional Banks (IAT) also fall into this category.
Additionally, fears that consumer spending would slow down pulled some of the declines relative to fair value. Retail sector ETFs may also have the same result as the financial. SPDR S&P Retail (XRT) price-to-fair-value is at 0.78. Consider that the sub-prime crisis may not be effecting the fundamentals of the entire banking business across the board.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.