Grab Your Undervalued Large Caps Here


Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some hefty stocks to your portfolio, and you favor those that seem undervalued, the First Trust Large Cap Value AlphaDEX ETF 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 First Trust ETF's expense ratio -- its annual fee -- is 0.70 %. The fund is fairly small, too, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This ETF has performed reasonably well in its relatively short life, beating the S&P 500 oer 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.

Why large companies?
It's best to keep your portfolio diversified, by industry, geography, and market capitalization. Large companies can add some ballast to your collection. Better still, ones that seem undervalued stand a good chance of rising closer to their intrinsic value.

More than a handful of large companies had strong performances over the past year. Valero Energy , a major refiner, soared 72% and recently hit a 52-week high, profiting from lower crude oil prices. (Lower crude prices mean lower input prices for refiners and thus higher profit margins.) Fans like its solid fundamentals and growth prospects, but bears worry about possible fallout if fracking activities are reined in by regulations. The company recently announced plans to buy some 2,000 railcars to ship oil in pipeline-less regions.

Teradyne surged 14%, making equipment that tests technological items such as semiconductors. It's expanding its capabilities, too, such as by buying LitePoint, a wireless testing specialist. Teradyne recently reported quarterly revenue up 35 %, though it also tempered near-term expectations. The last two Wall Street outfits to initiate coverage of Teradyne rated it a buy.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Nabors Industries , owning the world's biggest fleet of land-drilling rigs, sank 17%. The company has been working on decreasing its debt, in part by selling off assets . Despite a slowdown in drilling and rising costs , the company managed to post an increase in earnings in its third quarter. Its involvement in fracking has some concerned, though.

Office supply retailer Staples shed 16%, as some worry about slow-growing revenue. Others, though, are drawn to its low forward P/E of 8. Interestingly, the company is getting into the promising 3-D printing business, and that's not as crazy an idea as you might think, as home-based 3-D printing may not work for everyone.

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.

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Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool owns shares of Staples. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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