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3 Reasons to Buy Stock ETFs

Stocks in this article: VIG VYM DEM DIA FRN SDY XLU

NEW YORK ( TheStreet) -- Increasingly, investors have been asking that I put more cash to work. This includes new clients who have been sitting on the sidelines. It also includes current clients who are depositing checks from their banks into their brokerage accounts.

Guarded optimism and restrained greed have returned. It's not the kind of euphoria that, if experience serves, tends to accompany the end of bull markets. Nevertheless, the new-found enthusiasm is coming as global stock assets are hitting two-year highs. In some emerging markets, in fact, prices are logging all-time record peaks.

In this environment, there are those who are hoping for a 5%-10% correction here in November. They're hoping that excessive bullishness and 10 weeks of vertical movement will give them a better "buying opportunity." The problem is they may not get it.

Here are three reasons to buy 2%-3% dips for the ETFs on your Buy List:



1. Treasury yields are much lower than they were seven months ago. When U.S. stocks hit their April 2010 highs, the 10-year Treasury note was near 4.0%. Today, it is near a ridiculously low and historically undesirable 2.5%. Money will continue to leave Treasuries for higher-yielding bonds, preferred shares, partnerships and, yes, stock assets.

The quest for higher yield may begin with ETFs such as Vanguard Dividend Appreciation (VIG) , Vanguard High Yield Dividend (VYM), as well as dividend-based index trackers like WisdomTree Emerging Markets Equity Income (DEM).

2. Price-to-earnings valuations are much better than they were seven months earlier. Consider the simple reality that stocks are at roughly the same place that they were in April. In the seven months that followed -- through a substantive stock correction and an economic soft patch -- corporate growth was vibrant; more than three-quarters of companies beat top-line revenue and bottom-line profit expectations repeatedly.

In other words, the "P" in the price-to-earnings ratio, or P/E, is roughly the same whereas the "E" is much higher, making stocks more attractive on a fundamental basis. This holds true for the Dow Diamond Trust (DIA) with a low 14.5 trailing P/E as well as Claymore Guggenheim Frontier Markets (FRN)with a published 11.0 trailing P/E.

3. The U.S. Government will temporarily extend all of the Bush tax cuts. You can worry that the lame-duck Congress will get nothing done on tax policy -- either because it'll be too difficult for leaders to compromise or because of the complexities involved in a compromise. Yet President Obama is likely to punt the football, agreeing to a simple, temporary extension for two years.

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