Fundamentals Will Return to Favor in 2009

December 31, 2008

Fundamentals Will Return to Favor in 2009

I'm glad you've taken some time to talk with me before you pop the cork on 2009! In today's special year-end edition of What's Working on Wall Street Now, I want to share my thoughts on the coming year and let you know what sectors are going to be the most important in the new year. As investors, we can't predict the future–but we can stay ahead of the market by watching the trends and adjusting our portfolios accordingly.

The big overarching trend that will dominate 2009 is the movement back to conservative investing. Too many individual and institutional investors were burned in the last several months, and the shock of the financial crisis has drastically dialed down tolerance for risk. Sound, conservative strategies like following fundamentals and earnings will return to favor.

The numbers don't lie. I've focused on concrete measures like sales growth and earnings surprises for nearly 30 years at Emerging Growth, and I've beat the market 4-to-1 over that time. Sure, some smarty-pants traders have had better numbers than me for a few months or even a year, but their complex and risky strategies always burn out quickly.

So keep this return to fundamentals in mind as we talk about what to expect from the following industries. While it's important to avoid sectors that are struggling and focus on those that are insulated from the current economic downturn, it is even more important to make sure your stocks are fundamentally strong. Earnings and sales growth are the key across the board.

Here's my take on five important sectors, and how they will perform in the coming year: