Friday, September 23, 2005

 

Hot sectors for 2006

It was a tough week for smallcaps. The Russell 2000 fell 2.5 percent, underperforming the NASDAQ (down 2 percent) and the big cap S&P 500 (down 1.8 percent). My portfolio, which is exclusively smallcap (indeed, microcap) was not spared, falling $5,142 (0.9 percent) to $554,581.

As the fourth quarter draws closer, I have been thinking about what sectors will lead the market in the months ahead. Like many of you, my exposure to energy was relatively small over the last few years. Too bad since many energy stocks have risen tenfold in that time span. Although I think it's possible that energy will continue its run (I added a bit more to my position in AE today), I don't want to increase my exposure to energy stocks too much.

I believe that to generate consistently positive returns you have to buy stocks with little downside risk. I don't know what will happen to oil prices but if they were to fall, it is certain that energy stocks will fall as well. And as we've seen with housing stocks, the resulting downdraft can be swifter and uglier than most had suspected.

With that in mind, I am turning to you, my readers, to suggest what sectors will lead the markets in the months and years ahead. I've already mentioned on this blog that I think voice over internet (VOIP) could generate some investor excitement, which is why I have carved out nice positions in stocks like CALL, MNDO, VTEK, BOSC, and PCTI.

Another possibility is 'clean stocks' that cater to alternative energy. I personally don't own any of them since past experience has shown that most of those companies will fail. Please leave a comment with your ideas (you can also email me but I would prefer that you keep your ideas public by posting a comment so that all the readers of this blog can benefit).

Comments:
Although my knowledge of economics is close to zero, I think that consumer is close to exhausted and the government will try to make up for 'it'.

Richard Russell makes the very good point that the Fed IS inflation, with M3 up about 7% in 12 months and up almost 10% annualized in the past three months. What the weasels say and what they do is different.

I'm favoring stocks that the goverment will be paying for: the Halliburton 'analogs' going forward. Whether New Orleans should be rebuilt in its prior form should be a matter of public debate, dialogue, and a judicious cost-benefit analysis.

We need NOLA as a deep water port. Whether an 'underwater' city (city in a soup bowl) should be reconstructed during a possible cyclical climate change is highly debatable. Of course, the politicians' lifeblood is graft, fraud, corruption, and favors, which is why there is no discussion.

The future belongs to water-related stocks, energy (after some pullback), metals (gold hasn't done ANYTHING yet), and homeland security stocks. Can you trust the dollar when the government prints them like crazy?
 
NKBS, ICOC
 
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