Invest in the Undervalued Stock Market

Invest in the Undervalued Stock Market

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add a wide range of stocks to your portfolio, representing the overall market, and would like to focus more on undervalued ones, the SPDR S&P 1500 Value Tilt 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 SPDR ETF's expense ratio -- its annual fee -- is a low 0.35%. The fund is very small, though, 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 is too young to have a sufficient track record to assess, though for what it's worth, it's beating the S&P 500 so far this year. 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 value-oriented companies had strong performances over the past year. Prudential Financial surged 70%, and its forward P/E ratio is still around 10, well below its five-year average of 14. The company has been reinventing itself a bit, selling off its wealth management business and getting into the pension business in a promising way. It's also planning to buy back a lot of stock, and last hiked its dividend by 16%. The company and its industry are not without some concerns, though, such as variable annuity risks. And it's fighting back against being labeled "systemically important," which would result in greater government oversight.

MetLife jumped 64%, and has a forward P/E of roughly nine, about equal to its five-year average. The company has reduced its regulatory oversight by selling off its banking unit to GE's GECapital division. It has also stopped selling long-term care policies. Its reputation may have taken a hit, though, on news of a settlement tied to unpaid death benefits.

Hewlett-Packard gained 36%, sporting a forward P/E of seven, vs. a five-year average of nine. Many have abandoned hope for the company, with some skeptical of its latest plans to tackle the smartphone market, but it still offers reasons to hope. In June, it landed two Pentagon contracts worth about a billion dollars, it's generating a lot of cash, and its 2.3% dividend has been growing briskly lately. Still, many are choosing to wait and see.

ConocoPhillips advanced 22%, and its forward P/E of 10.1 tops its 7.6 average. It offers a dividend yield of 4.2%, which it recently upped by 4.5%. The company has been focused on production more than exploration, with promising results. It's also been selling off billions of dollars worth of assets, aiming to get stronger by getting leaner.

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.

The companies above are well worth your consideration, and so is this one -- selected by The Motley Fool's chief investment officer as his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

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Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, holds no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. 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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