Undervalued Large-Cap Stocks

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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some undervalued large-cap stocks to your portfolio but don't have the time or expertise to hand-pick a few, the SPDR S&P 500 Value ETF (NYSEMKT: SPYV  ) could save you a lot of trouble. Instead of trying to figure out which stocks will perform best, you can use this ETF to invest in many of them simultaneously, as it offers S&P 500 components exhibiting value characteristics.

The basics
ETFs often offer lower expense ratios than their mutual fund cousins. This ETF, focused on undervalued large-cap stocks, sports a relatively low expense ratio -- an annual fee -- of 0.2%. It recently yielded about 2%, too.

This ETF has slightly lagged the full S&P 500 over the past decade, suggesting that it might be better used as a hunting ground for individual stocks than as an investment itself.

Why undervalued large-cap stocks?
Large companies can add some ballast -- and dividends -- to your portfolio. Many may not grow as briskly as their smaller counterparts, but having reached their current size they likely have some strong assets and features. And some can grow quite briskly. Meanwhile, focusing on seemingly undervalued large-cap stocks can add a greater margin of safety to your portfolio.

More than a handful of undervalued large-cap stocks had strong performances over the past year. Intel (NASDAQ: INTC  ) , for example, surged 20%, and it offers a hefty dividend yield of 3.6%. Bulls see a lot of potential for the chipmaker in the burgeoning "Internet of Things," which can make good use of Intel's data centers, and it could also serve the health care industry well. Bulls also see value in Intel's dominant market position and significant payout. The company has been in a bit of a slump, posting underwhelming earnings and trying to boost its presence in the smartphone and tablet markets. Bears are wary of sluggish growth.

Caterpillar  (NYSE: CAT  ) jumped 11% over the past year and yields 2.5%. The world's largest maker of construction and mining equipment has struggled in recent years. It has recently shown signs of recovery, but now weakness in China threatens its performance. Bulls are hopeful about the company's plan to strengthen its important dealer network, and see Caterpillar's fortunes improving if mining and infrastructure work pick up. On the downside is a U.S. Senate investigation into whether Caterpillar improperly avoided taxes by shifting billions of dollars of profits to low-tax countries.

General Electric  (NYSE: GE  ) gained 9% and yields 3.5%. It has been transforming itself lately via an increased focus on energy, with oil and gas now its fourth-largest revenue generator. Part of General Electric's transformation involves spinning off its sizable retail finance business. GE's fourth quarter featured revenue up 3% from the year-ago quarter, earnings per share up 20%, and its order backlog growing by 8% to a record $244 billion. Bears might balk at its considerable debt, but bulls see that debt as manageable and like that GE enjoys sales of higher-margin services and supplies on top of lower-margin equipment sales. The company's CEO buying millions of dollars' worth of shares is appealing, too.

Other undervalued large-cap stock didn't do quite so well over the last year but could see their fortunes change in the coming years. Cisco Systems  (NASDAQ: CSCO  ) , for example, advanced just 5% but offers a 3.5% dividend yield. It has been executing massive stock buybacks as well, but that has left some seeing these expenses as unsustainable. Meanwhile, gross margin has been shrinking, while cash flow has not been growing very briskly. Still, bulls see it as undervalued and like its growth in data centers and security. Cisco Systems is also dealing with an investigation of its practices in Russia at the request of the SEC.

The big picture
If you're interested in adding some undervalued large-cap stocks to your portfolio, consider doing so via an ETF. 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

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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