Pure Value, Anyone?

Pure Value, Anyone?

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to focus some of your investing on mid-sized value stocks that exhibit low book-value-to-price and sales-to-price ratios, as well as dividend yields, the Guugenheim S&P 500 Pure Value 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 Guugenheim ETF's expense ratio -- its annual fee -- is a low 0.35%. The fund is on the small side, 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 rather 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.

Why value?
One way to up your chances of getting great results investing is to focus not only on great companies, but also ones that are undervalued. This ETF favors value.

More than a handful of its "pure value" companies had strong performances over the past year. Genworth Financial , for example, doubled in value, as did Western Digital . My colleague Robert Eberhard called Genworth cheap back in March, but it still sports a forward P/E ratio near eight, well below its five-year average. It has been making itself more attractive, in part, by selling off its wealth-management business. It's also working on raising its rates for its long-term care insurance, as that has become quite costly (causing some rivals to simply exit the business) -- and it's cutting costs by laying off several hundred people, too. The company is positioned to profit from a rebound in housing, as well, as it insures mortgages. On the negative side, it was recently included in a probe into unpaid benefits.

Western Digital, along with Seagate Technology, controls about 85% of the hard-disk drive market. Despite worries about a shrinking PC market, bulls see a massive and growing need for storage, and view hard-disk drives as inexpensive solutions for that. With a forward P/E ratio near seven, Western Digital appears undervalued indeed, and it has boosted its presence in solid-state drives by a recent purchase of sTec. The stock yields 1.6%.

Major U.S. refinerValero Energy surged 50%, and yields about 2.3%. Valero is poised to benefit from the proposed (and controversial) Keystone XL Pipeline, and has been investing in railcars to help bring in crude from inland fields. Some worry about proposed legislation to reduce corn ethanol production, as Valero is a major producer of it, while others worry about a narrowing price gap between foreign and domestic crude. Valero has also partnered with Darling International on a renewable diesel business using animal byproducts. The stock has an attractive forward P/E of about five.

Xerox , meanwhile, gained 19%. With a forward P/E near seven, and a 2.5% dividend (hiked by 35% earlier this year), the stock seems a solid value. Xerox has been retooling itself in recent years, aiming for higher margins, and it's already generating more than $2 billion in free cash flow annually. It now gets a big chunk of its revenue from services instead of hardware, including some long-term government contracts. Xerox recently bought a digital education company, too, boosting its training business.

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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The article Pure Value, Anyone? originally appeared on Fool.com.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, holds no position in any stocks mentioned. The Motley Fool recommends Darling International. The Motley Fool owns shares of Darling International and Western Digital.. 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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