Promising Sectors for 2012

Fri Dec 30, 2011 10:04am EST
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By John F. Wasik

(Reuters) - For 2012, think volatility -- again.

Yet that doesn't mean that economic recovery won't be part of the story. A focus on the industries likely to benefit from a rebound and long-term demographic trends bodes well for these sectors:

* Health Care. If you don't have health-care stocks as part of core holdings in broad-based index or sector funds, you're going to missing almost guaranteed growth.

The leading edge of the 77-million-plus Baby Boomer generation has hit 65, a wave that will last more than 20 years. That will increase the demand for medical services, devices and pharmaceuticals.

Since health-care costs are outpacing consumer inflation, government and industry will be seeking myriad ways to cut costs. This means an even greater reliance upon drugs, particularly generics.

Patents on brand-name drugs are scheduled to expire in coming years, potentially creating a $100 billion market for generics, according to Leuthold Research. Sectors likely to benefit are pharmaceuticals, biotechnology, distributors and drug retailers.

Consider the iShares NASDAQ Biotechnology Index exchange-traded fund (IBB.O: Quote), which is the oldest ETF in this sector. For a more broad-based approach that includes most of the health-care industry, consider the T. Rowe Price Health Sciences Fund PRHSX.O.

* Consumer Discretionary. Are you a believer that the U.S. economy will continue an upward trend in 2012? Then you'll want to have a piece of general merchandise stores, apparel, diversified banks, computers/software and air freight companies. This is assuming that nothing nasty crosses the Atlantic to spoil the nascent recovery.   Continued...