This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

How Low P/E ETFs Can Become Less Risky

So how might you protect yourself? For starters, you must recognize that cheap can always get cheaper. You could have purchased the Nasdaq 100 (QQQ) 60% off of its 120 high at a price point of 50 in 2001, yet that would not have prevented further downside of another 60% as QQQ dropped from 50 to 19 over the remainder of the 2000-2002 bear market. Stop-limit loss orders can help one minimize the possibility of cheap turning into a disaster. Similarly, resolving to purchase assets that have established intermediate-term (100-day) and/or long-term (200-day) technical uptrends also increases the probability that you are making a well-reasoned decision.

For instance, Market Vectors Africa (AFK) has a trailing 12-month P/E of 12. Is it a bargain? Is it less risky than the name itself might otherwise dictate? Perhaps. The current price is not far from where it was a year ago. The price is also above both its 100-day as well as its 200-day moving average. Moreover, the 100-day recently crossed above the 200-day, a phenomenon that many technical analysts believe to be quite bullish. On a P/E of 12 alone, I would not be inclined to consider this exchange-traded tracker. With its recent price movement, however, Id have greater confidence in this funds capital appreciation potential.

In contrast, a number of estimates place the forward P/E for iShares MSCI Brazil (EWZ) at 11. That might be considered a steal at a 33% discount to the S&P 500. Yet from my vantage point, the recent inability of EWZ to hold either its long-term (200-day) trend line and/or its intermediate-term (100-day) trend line are reasons enough to look elsewhere. Efforts to catch a falling knife rarely pan out.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Certified Financial Planner Gary A. Gordon, MS, is the president of Pacific Park Financial, an SEC-registered investment adviser in California. He has more than 23 years of experience as a personal coach in ¿money matters,¿ including risk assessment, small-business development and portfolio management, and has taught finance in Mexico, Singapore, Hong Kong, Taiwan and the U.S. He wrote the draft copy for ¿Maverick Investing,¿ a McGraw-Hill publication, and writes commentary for Seeking Alpha in addition to ETF Expert, for which he also hosts the ETF Expert Radio Podcast.
2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $126.41 0.00%
FB $81.21 0.00%
GOOG $575.33 0.00%
TSLA $200.63 0.00%
YHOO $44.16 0.00%

Markets

DOW 18,135.72 +38.82 0.21%
S&P 500 2,101.04 +2.51 0.12%
NASDAQ 4,982.8090 +15.6680 0.32%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs