2 ETFs Trading at Bargain Prices

The stock market has been in a correction mode as investors took a pause during one of the strongest bull markets in recent history continues to move higher. During the normal pullback from all-time highs there have been ETFs that have held up well as others took big hits for a variety of reasons. Typically when this type of action occurs it creates opportunities for investors to buy select positions at bargain prices.

After scouring through a list of hundreds of ETFs that have pulled back, there was a handful that stood out as solid long-term investment opportunities. The list was narrowed to two ETFs that each has their own unique bullish factors.

The iShares S&P U.S. Preferred Stock ETF PFF is a basket of 323 preferred stocks that are based in the U.S. The allocation is heavily weighted to preferred stocks offered by companies related to the finance industry. Since hitting a multi-year high in early May the ETF has fallen by 9 percent, a big move for preferred stocks. The ETF traded at the lowest level since 2012 and the selling moved to panic levels.

A major reason for the selling is related to high dividend payouts that make preferred stocks attractive to investors. As interest rates have increased it makes the dividends less valuable to potential shareholders. That being said, the selling has been overdone and the 12-month yield for PFF has risen to 5.8 percent, double that of the 10-year treasury bond.

The IQ U.S. Real Estate Small Cap ETF (ROOF) was on the verge of entering bear market territory (a loss of 20 percent) before finding some support this week. The niche ETF concentrates solely on the small cap portion of the U.S. real estate sector, which has outperformed their large cap peers four of the last five years.

The rise in interest rates has also played a role in the selling of ROOF due to the ETFs 4.8 percent dividend yield. The large pullback has created an opportunity for investors to begin building a position in a sector that have more upside in the coming years. The dividend is a bonus in the scenario.

Both ETFs are considered aggressive plays because they are only a couple days off lows, however by taking a contrarian view could pay off handsomely in the future. The key is to buy now and immediately place a stop-loss order approximately 10 percent below the current price to limit any big losses in the event you are catching a falling knife.