FirstAlert[tm] 1/7: Year Of The Laser Beam

(financialwire.net via COMTEX) -- WMT | Quote | Chart | News | PowerRating -- January 7, 2009 (FinancialWire) (By Dr. Joe Duarte) The S&P 500 is getting off to a good start in 2009. But there is more to this market than the first few days of positive action. 2009 looks to be a year with the potential for significant developments in the stock market and geopolitics where there is little room for error, even for the most astute and discerning investor. There are clearly two major themes underlying the two areas that will likely shape the year. As the worst news about the financial markets in decades has surfaced, investors seem to have developed a "what else can happen"" attitude, leading to the potential for higher returns in stocks. On the geopolitical front, the U.S. withdrawal from Iraq, and its effects have yet to be felt. But there are hints about what's coming there as well. Value, Brand Loyalty, and Responsible Management 2009 is likely to be a stock picker's year, which means that money managers are likely to focus their efforts on individual stocks, not indexes. And while there are no guarantees that stock prices are going higher in w year following the worst returns in decades, there are plenty of reasons for prices to rally; lower interest rates, significant amounts of pessimism, and a Federal Reserve with the printing presses on high. Still, investors should not expect to have an easy time picking winners, as old-fashioned value criteria are back en vogue. And that makes this a laser beam, not a shotgun market. The major influence will be consumers and businesses with tighter budgets and an eye for value. It will be this demand for "good stuff" for less, and service with a smile that will rule the roost. That means that well run companies, with real, useful, reliable products and the ability to manage their sales, assets, and future lines of products are the ones that are likely to catch the eyes and wallets of money managers, since they will be the ones that will be busy. More than anything, and barring a continued deterioration of the global eocnomy, management teams that can actually deliver substantial and believable results are the most likely to be rewared with potentially higher stock prices. That means that companies with brand names and a loyal following are likely to do better than the rest of the pack. Two good examples are McDonalds' (NYSE: MCD | Quote | Chart | News | PowerRating) and Wal-Mart (NYSE: WMT), both components of the Dow Industrials. Other such companies can be found in our Fallen Angels Portfolio, including Hewlett Packard Compaq (NYSE: HPQ), and IBM (NYSE: IBM). To be sure, this isn't earth shattering stuff. But it is what works in the early stages of a new bull market, if that's indeed what the last few days of trading indicate. Nowhere was this concept, and its global presence, clearer to us than over our recent stay in Disneyworld, where huge crowds of domestic and international guests battled long lines and high prices, just to be in a place that delivered what they perceived was of value to them and their families. Best of Sectors In 2009, investors will have to focus on the best stocks in the best sectors, and our early picks for the year are:

Energy - After a huge hit in 2008, the energy complex started to show some strength in December. With OPEC cutting production, and seeming to stick to it, combined with increasing tensions in the Middle East, the large integrated oil companies, as well as key players in oil service should do well. We have been establishing positions in energy steadily since the fourth quarter of 2008.

Drug and Biotech - Steady earnings, new drug approvals, and consolidation should boost this increasingly homogeneous sector of the market, which has had few supporters in the last few years. In keeping with our underlying theme, it's about quality, not quantity here, as not all players will do well in the current environment. As with energy, we have been building positions in biotech and in large pharmaceutical stocks since the fourth quarter of 2008.

Old Fashioned Technlogy - This will be a good year to stay away from concept stocks with no chance of making money in the next five years. Instead, older established names, such as Hewlett Packard and IBM are likely to outperform. We feature these companies in our Fallen Angels Portfolio.

Steady Eddies - This is a grab bag category, in which companies share the key characteristics highlighted in our first section, value, brand loyalty, customer service, and most of all large market shares, the one thing that will allow them to cut prices more aggressively than the competition if necessary. It's important to note the following. As the year progresses, the overall dynamics of the market will also change. That means that what looks good now, may not look so attractive by the middle of the year. Much depends on what happens in Washington with regard to the development and implementation of stimulus programs, as well as how steady President Obama is with the fiscal side of the equation. If he is a wild spender, as many expect him to be, any rally could be short lived. Geopolitical Danger On The Rise The one certainty for 2009 seems to be that geopolitical problems will rise. These will be related to jihadists, organized crimes, and governments such as Russia, China, Venezuela, and Iran who stand to gain from perceived U.S. weakness in the global arena. As the U.S. pulls out of Iraq, and redeploys troops elsewhere, there will be a reaction from jihadists and governments throughout the world, with the potential for conflict likely to rise along many disputed borders. Already, the attacks in Mumbai, and the surge in the Israel-Hamas conflict are supporting evidence of our thesis. Yet, an even more troubling, and thus far largely ignored aspect of the problem, is the apparent increase in cooperation between jihadist groups accross the globe. The hand of Iran is already palpable globally in this respect, as its funding of Hezbollah has allowed it to gain a foothold in Lebanon and Syria. Yet, there are now reports that Hezbollah has been aiding Hamas, financially, and with the training of soldiers. The corollary to this development is the increase in the rally cry from jihadists around the world with regard to the situation in Gaza, as several groups in other countries outside of the Middle East. According to Israe's Haaretz Iranian clerics were calling for volunteers to go to Gaza, while demonstrations supporting Hamaz popped up recently in front of the Israeli embassy in Argentina. In Indonesia, the Islamic Defenders Front was reportedly planning to recruit fighters to enter in the Gaza conflict. And the British embassy in Tehran was also attacked by protestors in response to the Israeli incursion into Gaza. With the U.S. out of Iraq, expect jihadist marketing and propaganda to portray that as a victory, and to use it as a method to increase recruits. Also important, especially with regard to the U.S. will be what happens with Mexico's drug war. Both the level of violence, and the frequency of events in this arena are on the rise. The arrest of a large group of men allegedly involved with drug cartels, and the presence of a reigning beauty queen in a drug bust that included a large cache of weapons points out the scope of the problem. From an economic point of view, the rise in crime and violence in Mexico will be a significant problem for the U.S., whose southern border fence is reportedly an effective detterent to illegal crossings.

Russia's death grip on Europe's energy supply is another important cog in the geopolitical machine, as are China's internal problems and the potential there for social unrest as a result of the global recession. And finally, as the price of oil has collapsed, countries such as Venezuela have felt the pinch on their political agendas. Hugo Chavez is increasingly unpopular in Venezuela, as a result of his social agenda getting squeezed, and the potential for problems there is also on the rise. The Intangibles Finally, we get to the intangibles, those things that seem to pop out of nowhere to move markets and people. To be sure, many of these so called "surprises" have been developing for years, and often decades. 2008 gave us three major intangibles. One was the Obama election victory, while another was the fact that the U.S. actually began the process of pulling out of Iraq. On the financial front, the King of Kings development was the Bernard Madoff scandal, which until proven otherwise might have been the event that history will show was the bottom for the bear market, although it's too early to verify that at this point. No one knows what will come out of the blue in 2009. But something, or many things will surprise the world, and the media, although if you take the time to think about things, you could see it coming. Conclusion 2009 will be a year with little room for error on the investing front, as many significant external variables are likely to influence trading. Internally, the market is very oversold, though, which raises the possibility of a continuation of the rally that started in late December for a few weeks into the new year. Investors who remain patient, have realistic expectations, and don't overleverage themselves are likely to come out better than those who fail to do their homework and get greedy. The more things change, the more they stay the same.

The Investrend Earnings Calendar features Constellation Brands (NYSE: STZ), expected at $0.59; Immucor (NASDAQ: BLUD), expected at $0.22; Monsanto (NYSE: MON), expected at $0.59; SuperValu (NYSE: SVU), expected at $0.61.

The Investrend Economics Calendar lists EIA Petroleum Status Report (10:30 a.m.), Treasury announces 10-year TIPS auction (11 a.m.).

The Investrend Events Calendar showcases COGO, NVLS, API, SPRD, SWKS, URBN at Needham & Company Growth Conference; STM at Consumer Electronics Show 2009; TDS, VZ, EQIX, USM at Citi Global Entertainment, Media & Telecommunications Conference; WYE, BDX, MHS, CELG at Goldman Sachs CEOs Healthcare Conference.

The Investrend Money Index is an indicator of the depth of market direction or indirection. While not always including the same stocks, the NYSE/NASDAQ 50 Most Actives indicate the direction in which the mass of money is flowing. Last session's trading showed 43 advancers versus seven decliners. Advancers were led by Indevus Pharmaceuticals Inc. (NASDAQ: IDEV) up 73.55%, American Capital, Ltd. (NASDAQ: ACAS) up 40.58%, Flextronics International Ltd. (NASDAQ: FLEX) up 15.16%, Seagate Technology (NYSE: STX) up 12.45%, Sun Microsystems, Inc. (NASDAQ: JAVA) up 11.19%, Electronic Arts Inc. (NASDAQ: ERTS) up 11.14%, Morgan Stanley (NYSE: MS) up 11.12%, Dryships Inc. (NASDAQ: DRYS) up 9.96%, Sprint Nxtel Cp (NYSE: S) up 9.43%, Freeport Mcmoran B (NYSE: FCX) up 9.18%, Marvell Technology Group, Ltd. (NASDAQ: MRVL) up 8.83%, Applied Materials, Inc. (NASDAQ: AMAT) up 8.53%, Hewlett Packard Co (NYSE: HPQ | Quote | Chart | News | PowerRating) up 8.20%, Research In Motion Limited (NASDAQ: RIMM) up 7.65%, Companhia Vale Ads (NYSE: RIO) up 7.16%, Ford Motor Co (NYSE: F) up 6.98%, E*Trade Financial Corporation (NASDAQ: ETFC) up 6.87%, Broadcom Corporation (NASDAQ: BRCM) up 6.77%, Dow Chemical (NYSE: DOW) up 6.64%, Charles Schwab Corporation (The (NASDAQ: SCHW) up 6.47%. Decliners followed Activision Blizzard, Inc (NASDAQ: ATVI) down 6.51%.

Vote in the Investrend Poll Question of the Day at Investrend Information (http://www.investrendinformation.com).

Investrend Website of the Day: http://www1.eere.energy.gov/solar/solar%5Famerica/

Quote of the Day: "Now I am happy I did 'Gone With the Wind.' I wasn't when I was 28, but it's part of black history. You have no idea how hard it is for black actors, but things change, things blossom in time." Butterfly McQueen

Today is: Ashura, International Programmers' Day.

Happy Birthday: Millard Fillmore, Butterfly McQueen, Kenny Loggins, David Caruso, Katie Couric, Nicolas Cage, Natalie Gulbis.

Today in History: Fire destroyed Jamestown, Virginia, in 1608. Galileo Galilei observed the four largest moons of Jupiter for the first time in 1610. The first American commercial bank, Bank of North America, opened in 1782. W.K. Dickson received in 1894 a patent for motion picture film. First transatlantic telephone call, from New York City to London, was made in 1927. The Harlem Globetrotters played their first game in 1927. President Harry Truman announced in 1953 that the United States has developed a hydrogen bomb. President Jimmy Carter authorized in 1980 legislation giving $1.5 billion in loans to bail out Chrysler Corporation.

[FirstAlert" was created by Gayle Essary, founder of Investrend Communications, Inc., parent of Investrend Information (http://www.investrendinformation.com). The opinions expressed in FirstAlert" do not necessarily reflect the opinions of Investrend.]

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