It's hard to imagine a more tumultuous market year than the one that's about to wrap. Financial headlines in 2008 repeated billions of dollars in write-downs at the major banks, rounds of corporate layoffs and a slipping-and-sliding stock market. While it may not get worse, market experts say we're hardly in for a complete 180 in the new year. For one, the start of a new presidential cycle is historically subpar for the broader market. "When I think about the typical first two years of a president's term in office, the gains are 5 percent or so--not great," says Sam Stovall, chief investment strategist of Standard & Poor's Corp. Equity Research.
Secondly, the colossal wreckage from the housing and credit crisis will take time to rebuild and fortify. "It's going to be a long and arduous [recovery] process," says Todd Harrison, founder and CEO of financial intelligence and infotainment website Minyanville.com. "We've been living beyond our means for a long time. We're in the process of taking our medicine."
Market experts suggest some good hiding places in the new year that may actually buck the backward trend.
Despite a bipartisan push for alternate fuel resources, experts say demand for oil and, thus a subsector, oil drilling, is not going away any time soon. "There's a lot of interest in renewable energy, but the problem is that it's very difficult to take these projects and make them commercially viable," says Stewart Glickman, oil services and drilling equity analyst for Standard & Poor's Corp., who cites oil drillers like Noble (NE) and Trans-ocean (RIG) as having a backlog of activity. "The prospects of revenue visibility are outstanding right now."
No matter the price of oil and no matter all the talk about adopting green energy, oil drillers have pent-up demand. Glickman says Transocean has about two years of backlog for every rig it owns. "If crude falls through the floor, they have enough business to keep them going for some time," he adds. Away from individual stocks, investors can diversify their holdings in this sector by buying funds. The Oil Service HOLDR exchange-traded fund (OIH) and the PowerShares Dynamic Oil & Gas Services Fund (PXJ), for example, both invest in a host of oil drilling and services stocks.
As more Americans are forced to pay out of pocket for health care, less expensive generic drugs will likely experience further boom in 2009 and beyond. Generic drug prescriptions accounted for more than 60 percent of all medications filled in 2006, a growth rate of about 22 percent year over year, according to IMS Health statistics. Leaders in the industry such as Barr Laboratories, Novartis and Teva Pharmaceutical are poised to benefit from patent expirations of major brand-name drugs over the next several years, like Pfizer's (PFE) cholesterol drug, Lipitor; Merck & Co.'s (MRK) osteoporosis medicine, Fosamax; and Plavix, a heart attack and stroke prevention drug from Bristol-Myers Squibb (BMY). To diversify risk, there are pharma ETFs that contain a mix of generic and brand-name drug companies, including iShares Dow Jones US Pharma (IHE), PowerShares Dynamic Pharma (PJP) and the SPDR S&P Pharma (XPH).
Cold, Hard Cash
Cash is king in times of turmoil. From U.S. Treasury bills to certificates of deposit and money market mutual funds, there are various ways to play the cash card, and in 2008 investors embraced this motto, making distinct transitions away from equities and over to the cash market. Researchers at HSBC found that 44 percent of global investors held an "overweight" position on bonds in their portfolios in the third quarter of 2008 vs. 20 percent in the second. In addition, approximately 38 percent of those surveyed said they would like to have more of their money in cash holdings, up from 30 percent in the previous quarter. The trend ought to continue, experts believe. "Cash is the safest place to be," says Harrison, who adds that the central themes next year for all investors, in addition to capital preservation, should be debt reduction and financial literacy. "It's about discipline over conviction."
Farnoosh Torabi is a senior correspondent for TheStreet.com TV and author of You're So Money.