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What Sectors Of The Stock Market Should Do Well This Year?

- Alan Lavine and Gail Liberman



A report by Edwin D. Everett, of David L. Babson & Co., Boston highlights some of the best and worst business sectors.

You can buy individual stocks in a sector such as banks or invest in a sector fund which invests in a large number of stocks in a specific industry. But be advised sector investing is risky. You are not diversified. Bad news about a company or an industry can send sector stocks tumbling. It's best to have a buy and sell strategy when you invest in a few stocks or a sector.

That said, here are Everett's prognostications.

Consumer staples. Retail drug stores are the bright spot in this sector as they benefit from sales on non-pharmacy drugs. Plus, there have been profit margins on the sale of generic drugs. They will also benefit from a pick up in the economy. Consumers will pay higher prices for items at the drug store due to convenience. Beauty product manufacturers are also enjoying pricing power. Sales trends are solid. Productivity is good and cost controls have improved profit margins.

The energy sector looks good. A cold winter has boosted profits. OPEC is keeping prices higher than usual because of the declining value of the dollar. Energy inventories of industrialized nations are below normal. China is a big importer of oil. Natural gas demand is greater than the supply.

Financials. If interest rates rise, depositors will pull money out of banks and invest elsewhere for higher yields and the mortgage business will slow down. Therefore, it could be a neutral year for investment banks. But property and casualty companies can do well because they have cut cost and raised prices.ye Health Care. We should see new drugs coming to market. Generic drug companies will benefit from drugs coming off their patents. The Medicare Drug bill will not hurt drug companies. Medical technology is the bright spot in this sector.

Industrials. Business spending on plant equipment is spurring this sector to higher profits. Plants have restructured and cut costs. The defense industry is benefiting from the war.

Technology stocks. In the semiconductor area, supply will be greater than demand in the last half of this year. Next year, however, as computing power increases, semiconductors should do well. Memory chips face capacity issues this year. Computer hardware sales should pick up as old equipment is replaced. Storage and printer sales should be strong. The software business should pick up.

Consumer staples. Wal-Mart's domination in the market keeps the pressure on its competitors to keep its profit margins down. Consolidation of retail firms, however, will increase retailers' purchasing power. It helps them keep the cost of goods they sell down.

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Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books). Al and Gail's new book is Rags to Retirement, (Alpha Books).


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