These Soaring Stocks Have More Potential

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to load up on some promising small-cap stocks because of their superior growth potential, the Vanguard Small-Cap ETF (NYS: VB) , blending growth and value stocks, could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Vanguard ETF's expense ratio -- its annual fee -- is a very low 0.16%. (Vanguard is known for low fees.) The ETF even offers a dividend yield of roughly 1.2%.

This ETF has performed well, beating the S&P 500 over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a low turnover rate of 17%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
More than a handful of small-cap companies had spectacular performances over the past year. Onyx Pharmaceuticals (NAS: ONXX) surged 145%, largely due to FDA approval of its multiple myeloma drug Kyprolis, despite a failure for its liver cancer drug Nexavar. (It also helped that a Jefferies analyst recently suggested that Kyprolis's sales might be twice as high as many had expected.) There's speculation that Onyx's Nexavar partner, Bayer, might buy the whole company, for the rest of its pipeline. In the meantime, though, approval means revenue for this biotech company.

Questcor Pharmaceuticals (NAS: QCOR) shares jumped 87%, thanks to solid sales of its multiple sclerosis drug Acthar. Indications are that its third quarter sales will be strong, as well, as August paid prescriptions for Acthar are up 34% over July levels. Several analysts have upgraded their expectations for the company lately.

Ariba (NAS: ARBA) , which makes software that connects suppliers and buyers online, advanced 67%, partly on news that it's being acquired by SAP AG in an attempt to better compete with Oracle. The deal isn't finalized yet, as the Justice Department is running the deal through the regulatory approval process per anti-trust laws. Shareholders did recently approve the deal, though. In the meantime, Ariba's latest quarterly report showed revenue up 12%, and a loss of $0.01 per share, much improved from the year-earlier loss of $0.13.

Private equity and venture capital specialist American Capital (NAS: ACAS) gained 39%. The company has been busy selling off some businesses, buying back shares, and paying down debt. Bulls are looking forward to the company reinstating its dividend in the near future, as management has said it would like to do, but those chickens haven't hatched yet. Meanwhile, in our CAPS community, some highly-rated participants have pointed to its big tax-loss carryover as an appealing factor.

The big picture
A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in, and profiting from, it that much easier.

There are plenty of other appealing ETFs out there to consider. Learn about three that our Fool analysts think are a good investment in the Fool's free report, "3 ETFs Set to Soar During the Recovery."

The article These Soaring Stocks Have More Potential originally appeared on Fool.com.

Longtime Fool contributorSelena Maranjian, whom you canfollow on Twitter, holds no position in any company mentioned.Click hereto see her holdings and a short bio. The Motley Fool owns shares of Oracle. The Motley Fool has adisclosure policy.

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