Where to invest your money in 2010

The long-term economic outlook remains gloomy, but the market should still advance in the coming year. Here are the best directions in which to aim your portfolio.

[Related content: stocks, funds, economy, stock market, Wal-Mart]

By Kiplinger's Personal Finance Magazine

If you relish drama, 2009 had it all.

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there is something we should think about in this article :

The jobs figures are awful: a 10% unemployment rate at last report and more than 7 million jobs lost during the recession. Economists at ING project that a return to full employment over the next five years would require 15 million new jobs, or 250,000 per month (from 1999 through 2008, the economy generated 50,000 new jobs monthly). That's just not going to happen. Many of the jobs in bloated sectors, such as real estate, construction, finance and retail, are not returning anytime soon.

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A focus on earnings

Clearly, the U.S. faces many long-term structural problems. But the stock market, which began its remarkable leap after investors concluded that economic Armageddon was no longer at hand, will advance as it responds to an improving earnings picture. And treading carefully amid the wreckage in the economy, investors can still find some alluring themes.

One idea is to invest in blue-chip companies with strong foreign sales. Mike Avery, a co-manager of Ivy Asset Strategy, a global fund, hunts for "best in class" U.S. companies with strong overseas footprints. His U.S. multinational holdings include Monsanto (MON, news, msgs), Apple (AAPL, news, msgs) and Nike (NKE, news, msgs).

Channing Smith, a co-manager of Capital Advisors, says he holds Yum Brands (YUM, news, msgs), which operates KFC and Pizza Hut restaurants, for its large and fast-growing China business. He gravitated toward Procter & Gamble (PG, news, msgs), which sells affordable necessities, such as diapers and razor blades, for similar reasons.

Information technology, an area in which the U.S. leads, also benefits from global economic recovery. Alan Gayle, a senior investment strategist of SunTrust's RidgeWorth Investments, says many tech giants have strong balance sheets with little debt and impressive profit margins. Stocks he likes include Adobe Systems (ADBE, news, msgs), Hewlett-Packard (HPQ, news, msgs) and Microsoft (MSFT, news, msgs). (Microsoft publishes MSN Money.)

Like the technology sector, the energy and materials industries generate the bulk of their sales abroad. But exports and overseas sales are only part of the story for these businesses. Commodities, such as oil and iron, are traded globally and priced in dollars, so if demand from emerging markets and a weak buck drive up prices, the natural-resources producers benefit.

Crazy for commodities

Jerry Jordan, the manager of Jordan Opportunity Fund (JORDX), expects another onslaught of commodity-price inflation over the next couple of years, particularly in areas that have little new capacity coming on-stream, such as oil and copper. He likes oil equipment and energy services companies, including National Oilwell Varco (NOV, news, msgs) and Halliburton (HAL, news, msgs).

Jordan is also a bull on agriculture, reasoning that the rapidly rising consumption of animal protein in emerging markets will boost demand for grain used to feed livestock. His main plays on food are through a pork producer in China and through PowerShares DB Agriculture (DBA), an exchange-traded fund that holds futures contracts on grains and sugar. Rich Howard, a co-manager of Prospector Opportunity, favors DuPont (DD, news, msgs). The chemical giant has a large and growing seed-technology business that competes with Monsanto's.

Like many others worried about the health of the U.S. dollar and other major currencies, Howard has become a gold bug. He's allocated 10% of his portfolio to mining stocks, including Barrick Gold (ABX, news, msgs) and Newmont Mining (NEM, news, msgs).

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Health care uncertainty

Health care is a huge and growing domestic industry that's difficult to ignore. But uncertainty about the direction of health care reform makes investing tricky. Smith favors companies that will benefit from cost reduction and expanded insurance coverage, such as Quest Diagnostics (DGX, news, msgs), which provides testing services, and McKesson (MCK, news, msgs), a leading drug distributor. He's also bullish on Abbott Laboratories (ABT, news, msgs), a diversified, steady grower that he considers undervalued.

You can, of course, invest in themes such as these through diversified funds. For instance, Fidelity Contrafund (FCNTX) and Selected American Shares (SLASX) are both stuffed with large blue-chip U.S. companies with sturdy foreign franchises. For a fund tilted more toward tech and health stocks, consider Primecap Odyssey Growth (POGRX).

If you expect prices of oil, gold, grains and other stuff to continue to rise, you can invest through a fund such as Pimco Commodity Real Return Strategy (PCRDX), which seeks to track commodity futures prices. Or you can buy into a fund such as T. Rowe Price New Era (PRNEX), which invests in stocks of natural-resources companies.

If all of the many risks out there scare you, then take a look at FPA Crescent (FPACX), which has the ability to sell stocks short -- that is, bet on their share prices to fall -- and to invest in bonds and bank loans. Crescent has a long history of enjoying most of the gains of bull markets and protecting capital during tough times.

This article was reported by Andrew Tanzer for Kiplinger's Personal Finance Magazine.