Where To Invest In 2010

Expert market-watchers offer their outlook for the year ahead

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"Invest in industries that didn't take part in last year's run up," says Eugene Profit of Profit Capital Management. (Photo by Welton B. Doby III)

Tea leaves, tarot cards, roots, potions, and Mattel’s Magic 8 Ball. If any of these things actually worked to predict the future, what questions might you pose—as an investor, that is? Here’s one: Can the financial markets continue their amazing—sometimes logic-defying—rebound in 2010? And another: Regardless of the broad market’s direction, which companies are in a position to grow profits and reward shareholders this year? Imagine what you could do if you had the answers. With apologies to the infamous Magic 8 Ball, black enterprise took a more scientific approach to get a read on the investment picture, surveying a handful of expert market watchers.

Certainly, no one could have foreseen the events of 2009. Markets were full of the splash, spectacle, and drama you’d expect from a Super Bowl highlight reel. There was suspense from the start as stocks fell flat and dragged through January and February. By March, when the Dow Jones began to climb again, hope reappeared as the markets launched a heart-stopping rally—one of the strongest market rebounds on record. It took investors time to trust the recovery’s reliability, but by the end of the year, nearly 43% of investors described themselves as “bullish,” up from 28% in late June. Still, the markets were volatile. “We probably saw as many 2% climbs and drops in this past year as we experienced in the entire decade before 2008,” says Ted Parrish, director of investments at Hennsler Financial Group in Atlanta.

What continues to keep investors on edge is the mountain of issues facing the U.S. economy. It’s not clear, for instance, whether corporations in a recovering economy are now reporting profits as a result of brutal cost-cutting or because “green shoots” of growth are actually sprouting. It defies basic logic that sustained economic progress can occur in the midst of double-digit unemployment. Credit and housing markets remain unstable and don’t forget the staggering debt Uncle Sam is running up for the sake of saving the world financial system.

As it stood last November, the pros interviewed by our editors are divided into two distinct camps. There are optimists and then there are pessimists. Each side believes their investment approach can prove profitable. “I think 2010 is going to be difficult in the equity markets,” says Wayne P. Weddington III, an institutional investor with Brunswick Capital Partners L.P., a New York-based hedge fund. “We’ve obviously had a very strong run. But to continue this pace, you’d expect the Dow to hit 15,000 this coming March, which I can assure you won’t happen.” At the same time, Chief Investment Strategist Sam Stovall of Standard & Poor’s Equity Research says a gradual brightening of investor sentiment could possibly contribute to a double-digit stock market return (factoring in both share price gains and dividend yield) for the year.

One point all the experts agreed on: The year ahead could be choppy as investors attempt to gauge the true strength of the global economic recovery. There will be periods over the next several months—a promising unemployment release here, a dour housing report there—that are likely to trigger sharp advances and declines in the financial markets. All the same, whether your aim is to cash in on a recovery, leap at investment bargains, or secure a long-term position in the financial markets, there are ways to scan the terrain and make smart moves.

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