Three sectors that will dominate 2011b-seems mostly right so far

maomi

Jon Markman's Speculations

Jan. 3, 2011, 12:00 a.m. EST

Hot markets, top profits
Commentary: Three sectors that will dominate 2011
By Jon Markman, MarketWatch
SEATTLE (MarketWatch) — What is it about the start of a new decade that makes markets stir?

During the past 30 years, they have been crazy, stressful, amazing periods that have started with great hope but were punctured in some nasty way with war, recession or a serious slump in equity and credit. It’s as if the market gods want to take investors by the collar and remind them about risk before allowing them to enjoy the next nine years.

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• See the full Trading Strategies special report119229 In 1990, Iraq invaded Kuwait during a year when U.S. corporate results were already weak. The price of oil shot up, consumers seized up and the economy tipped into recession — leaving stocks with losses and investors smarting. But most of the next nine years were among the best for investors in history.

In 2000, the Nasdaq Composite Index (NASDAQ:COMP)  first lifted 1,000 points to set a record at just more than 5,000 — then spent the rest of the year giving it all back and more. That initial shot higher was also a tease, belying a decade of trouble for stocks.

So here we are in 2010, having suffered through a painful sovereign-debt drama in Europe, persistent high unemployment in the United States and an inflation wildfire in China. This must be one more plot to get investors off guard.

But don’t fall for it this time.

The next year, and even the next decade, could surprise us all with a stunning upside. It is precisely when the world looks like it is about to spin off its axis that the wheel of fortune tends to point higher.

I’ve run the numbers and come up with three sectors that I think will be dominating the headlines (and markets) next year, as well as some of the top companies in each of these industries.

Mobile Internet
The most sweeping theme in technology for 2010 will keep barreling forward into 2011: the expansion of the mobile Internet in the lives of every American.

Tech's time to shineDavid Bianco, chief U.S. equities strategist at Bank of America Merrill Lynch. is bullish on technology and sees strength in tech conglomerates, as well as emerging markets, energy and industrials.
If the 1990s were about the rise of the personal computer and the 2000s were about the rise of the corporate and public network, then the 2010s are all about the rise of the mobile network.

With lightning speed, people will come to rely more intensively on keeping their data in the “cloud” rather than on their desktops, and will expect to have all of their entertainment, communication and information-gathering tools at their fingertips at all times. Read about the top 10 IPOs of 2010 on InvestorPlace.

The top stocks, which can be owned as a basket, are the following:

Consumer facing: Google Inc. (NASDAQ:GOOG) , Apple Inc. (NASDAQ:AAPL) , Priceline.com Inc. (NASDAQ:PCLN) , Amazon.com Inc. (NASDAQ:AMZN)  and Baidu Inc. (NASDAQ:BIDU)   

Software and equipment: F5 Networks Inc. (NASDAQ:FFIV) , Cavium Networks Inc. (NASDAQ:CAVM) , Juniper Networks Inc. (NYSE:JNPR) , Broadcom Corp. (NASDAQ:BRCM) , Riverbed Technology Inc. (NASDAQ:RVBD) , Fortinet Inc. (NASDAQ:FTNT) , ARM Holdings PLC (NASDAQ:ARMH) , EMC Corp. (NYSE:EMC) , NetApp Inc. (NASDAQ:NTAP)   and Red Hat Inc. (NYSE:RHT)

Financials
Financial stocks are the most hated in the marketplace, and therefore the most undervalued. They are hated for good reasons in many cases, as they still have tens of billions of dollars of toxic debt on their balance sheets, and have seen earnings underperform amid a continuing saga of write-offs and low levels of lending. They also are still exposed to weak housing markets, not to mention the sovereign-debt fiasco in Europe.

Still, at a certain point, all of these troubles become discounted, and next the stocks can be marked up as the continuing economic recovery is discounted in turn. They will benefit from stronger economic growth, improving loan demand, a higher rate of dividend growth, improved Tier 1 capital ratios and improved credit throughout the country. They also will benefit by starting with low valuations. Read seven reasons to buy financial stocks now.

When you add buybacks together with dividends, analysts figure the banks could provide total yields of 5%. Add that together with 12% normalized earnings growth and an increase of price/earnings multiples, and banks could well rise as much as 20% as a group in 2011.

Top financials to consider for the coming year are capital market goliaths such as J.P. Morgan Chase & Co. (NYSE:JPM)  and Morgan Stanley (NYSE:MS) ; super-regionals Wells Fargo & Co. (NYSE:WFC) , Zions Bancorp (NASDAQ:ZION)  and U.S. Bancorp (NYSE:USB) ; smaller regionals such as Cullen/Frost Bankers Inc. (NYSE:CFR) , Northern Trust Corp. (NASDAQ:NTRS) and insurers/asset managers Lincoln National Corp. (NYSENC) and Principal Financial Group Inc. (NYSE:PFG)

Energy and materials
If the global economy does settle into an easygoing trot led by the United States and a recovering Europe, then a lot of the energy and materials stocks that were butchered in the past few years finally are going to have a revival of earnings growth. These companies have a lot of operating leverage, which means that just a little more revenue can bring big gains in earnings.

During periods when manufacturing indexes are well above the neutral line, energy tends to be one of the strongest cyclical performers anyway.

The price of crude appears to be ready to pop higher, and it won’t take much of a nudge to push the barrel toward $100 by midyear in the event that demand remains stable. Read a 10-step inflation survival guide on InvestorPlace.

Top-rated positions in my book are Occidental Petroleum Corp. (NYSE:OXY) , ConocoPhillips (NYSE:COP) , Apache Corp. (NYSE:APA) , Range Resources Corp. (NYSE:RRC) and even Exxon Mobil Corp. (NYSE:XOM) , but the real strength should come in oilfield-services providers such as Schlumberger Ltd. (NYSE:SLB) , Atwood Oceanics Inc. (NYSE:ATW)  and smaller oil producers such as Berry Petroleum Co. (NYSE:BRY) and Northern Oil & Gas Inc. (CONSOLIDATED:NOG) .

Rebounding from the dead might be the refiners, where top choices are Tesoro Corp. (NYSE:TSO) , Valero Energy Corp. (NYSE:VLO) and Western Refining Inc. (NYSE:WNR) , as well as bankrupt-exiting petrochemical refiner LyondellBasell Industries NV (NYSEYB) .

Jon Markman is currently recommending AAPL and ARMH to his paid newsletter subscribers
Markman is a money manager and investment adviser in Seattle. For more ideas like these, try a two-week trial to Markman’s daily investment newsletter, Strategic Advantage , published in partnership with MarketWatch, or his daily trading newsletter, Trader’s Advantage. Follow him on Twitter.

maomi

Mobile Internet sector seems a hot sector to invest with very nice return this year and the years to come before it crashes ;)