A Year in Review

December 16, 2008

A lot of investors are eager for 2009 after the record-smashing bear market that dragged stocks down to new lows in 2008. Others are worried we’ll just see more of the same in the new year. But whatever your outlook, we shouldn’t be so quick to put this past year out of mind. There are many lessons for investors—especially for those who want to make the most of the new opportunities 2009 will undoubtedly bring.

What DIDN’T Work

Financials. The bottom line is the financial sector tanked in 2008, and to this day, investing in financial stocks is a risky proposition. The last year has been one of the most volatile periods in market history, and banks of all shapes and sizes have been punished. For instance, Lehman Brothers—one of the biggest banking houses in history—no longer exists. And American International Group (AIG) and Citigroup (C) are down 98% and 76%, respectively, over the last 52 weeks and are now wards of the state. Now, some banks and brokerages are better than others, but none of them have been completely spared by the sector-wide disaster.

Automakers. U.S. automakers can’t seem to catch a break. Last week’s back-and-forth between the chambers of Congress over an auto bailout amounted to nothing, and the fate of the Big Three—General Motors (GM), Ford (F) and Chrysler—is still undecided. I’ve been telling you for months to unload your automaker stocks because these companies have been hemorrhaging cash for a long time now. Even foreign companies like Toyota (TM) are suffering thanks to drastically lower sales. Even with lower gasoline prices, monthly sales keep trending down because consumers are less willing to spend money on big ticket items like cars. If you trying to bargain hunt for this industry’s next leader, I’d wait until consumer confidence heals first. Automakers have a lot of challenges to tackle in the present before they can start planning for the future.

What DID Work

Retail. Before you get all worked up, let me first say that the greater retail sector did not fare well in 2008. The collapse of the financial sector has taken a big toll on retail, as a significant slowdown in consumer spending has dried up sales. One of the hardest hit companies was Circuit City (CC), which ultimately had to file for bankruptcy protection. But if you exercised caution and looked for companies with strong sales and earnings growth, you should’ve found some hidden gems in this sector. We’ve already talked at length about two of them: The king of retail, Walmart (WMT) and Buckle (BKE). Both of these stocks bucked the slumping retail trend thanks to their strong fundamentals. Walmart, especially, is a true diamond in the rough because as consumers tighten their belts, they’re on the prowl for cost-saving alternatives. Discounter Costco (COST) also has fared very well despite softer spending.

Oil and Energy. Energy stocks have taken a beating in recent months, as crude oil and natural gas prices continue to pullback. But this is not a permanent trend. There are a couple of reasons for this.

• First, energy is seasonal, and energy consumption tends to peak in the spring. And let’s not forget, this winter is supposed to be one of the coldest on record, which means demand for heating oil will perk up.
• Second, energy stocks are some of the few companies that have consistently grown their earnings in these difficult times, and right now, there are a lot of oil stocks trading at bargain prices.
• Third, OPEC and other oil-producing nations are on the brink of making some pretty big production cuts over the next couple of weeks that could limit supplies and put a bottom under oil prices.

The bottom line is if you’re looking for a surefire way to earn an extra buck or two over the next several months, the energy sector is fair game. Southwestern Energy (SWN), one of my recent Stock of the Week picks, is a great place to start if you want to capitalize on the energy sector in the coming months.

As investors, when planning our investment strategy for the year to come, it’s important that we take to heart the lessons learned from the year that’s just passed. I’m very excited about the opportunities 2009 will bring, and you should be too.

To learn more about what to do right now to secure future financial success, download Louis Navellier’s Special Report, “Navigating the New Market.”