Where To Invest In 2010

Expert market-watchers offer their outlook for the year ahead

Stocks to Consider
You might summarize the investment community’s outlook on the stock market in two words:  cautiously cautious. Sectors of the economy have begun to stabilize. Proof of that lies in earnings growth or profits that publicly traded companies report each quarter. According to Standard & Poor’s, the S&P 500 should turn in a 9% increase in earnings for 2009. S&P analyst Stovall says indications are that profits could increase 35%.
Even so, the goal for any investor in 2010, says Eugene Profit, CEO of Silver Spring, Maryland-based Profit Capital Management (No. 15 on the BE Asset Managers list with $931 million in assets under management) is to be defensive without running from stocks in order to take advantage of any upside potential the market may have. The solution, he says, is to invest in industries that either didn’t take part in last year’s run up, or exhibited ample strength in 2009. Two sectors that fit the profile for Profit are the technology and healthcare industries. “Because of concerns over reform, a lot of good healthcare companies have been held back,” he says, “In technology, you’ve got good news coming from major players such as Microsoft and Apple.”

Medtronic (MDT), the Minneapolis-based manufacturer of cardiac devices such as pacemakers and stents, is a healthcare company Profit has held in recent years and continues to like going forward. “The demand will continue to be there no matter what,” says Profit. One of his tech picks is Microsoft (MSFT). He believes its release of Windows 7 is likely to spur an upgrade cycle for corporations and households. Meanwhile, Apple (AAPL) continues to grow market share, thanks to the popularity of its iPhone and iPod products. “I think the company has quite a bit of room to go from here,” he says.

Hennsler’s Parrish will set his sights on companies with good prospects that were either punished or lagged in 2009. “My firm is really conservative to begin with,” he says, “and we’re sticking to what we do best—buying what we think are high-quality companies.” Along those lines, he has an unconventional take on publishing outfit McGraw-Hill (MHP). The company’s Standard & Poor’s rating agency came under fire after the meltdown in mortgage-backed securities. “The black cloud over the company is too dark,” says Parrish who believes its thriving textbook business and sale of BusinessWeek magazine to Bloomberg L.L.P. are two positives for the company. He maintains that his second selection, Wells Fargo (WLS), shunned by investors for its purchase of Wachovia, is poised to grow earnings at a healthy clip as housing sales rebound.

ETFs with Promise
One worthwhile strategy for 2010 could be to take advantage of growth in broad sectors of the economy while reducing the risk of exposure to the volatility of some individual stocks.  Exchange-traded funds (ETFs), or shares that invest in a basket of commodities or stocks, make that possible for the everyday investor. Weddington of Brunswick Capital Partners observes several macroeconomic trends to follow in the year ahead. First, there are basic materials, what he calls the “raw underpinning of economic activity,” which includes metals such as steel, iron, and aluminum, along with chemicals. “The sector should continue to perform well, especially since China has been buying up energy and materials companies,” Weddington notes. A weak U.S. dollar, he points out, will help push up the costs of basic materials commodities and, in turn, boost profits in related industries. He recommends the Basic Materials SPDR (XLB), an ETF which tracks the shares of basic materials companies in the S&P 500.

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