After a week of renewed hope that the U.S. dollar was going to rebound and oil would perhaps fall back down to $100/barrel levels, the market showed signs of decay this week and things look grim on the surface of things.

I was able to shrug off the positive sentiment from last week, where many investors were telling us that oil was done, which I felt was an over-reaction to one good week of trading. By keeping my favorite gold stock Yamana Gold (NYSE: AUY) my largest holding, I wasn’t hurt too badly this week when the commodity race came back with a vengeance, up $10 a barrel on Friday.

But the million dollar question remains: “can you actually make money in a lousy stock market?” Absolutely not. Yes, you just need to know where to look! Gone are the days when you could brag and look like a genius simply because you bought a small or mid cap stock then went up more than the benchmark… despite the fact that everything was headed up anyway. It’s time to get smart on stocks.

“Unless you were long oil futures, there was nothing pretty about Friday’s session, which was governed by a relatively disappointing employment report for May and a stunning rise in oil prices.” - Briefing.com June 6, 2008

The Net Fool’s Sector Run-Down:
In the 2008 stock market, it’s not which stock you pick, it’s where the stock is from. As the saying goes, you don’t want to best looking house in a bad neighborhood, you’d be much better off holding a half-rate home in a good neighborhood. Buying the best stocks in the best sectors is how you win nowadays, so you definitely want to focus on sector more than stock for the time being. While the common saying is 50% stock / 50% sector… I think that the current conditions merit 75% sector / 25% stock. Getting a well-run company is very important, but if they are getting hit with rising input costs or slow demand… there’s just not a lot they can do.

TNF Ratings (June 06, 2008):
Consumer Discretionary: Neutral
Consumer Staples: Buy
Energy: Strong Buy
Financials: Sell
Healthcare: Buy
Industrials: Buy
Information Technology: Strong Buy
Materials: Buy
Telecommunications: Neutral
Utilities: Neutral

There are gains to be had in everything except financials, a sector that I think will find trouble recovering over the next few months, despite all the ongoing headwinds that have many people smelling a bottom. Energy, namely those stocks specializing in natural gas and oil, has been soaring. I see this group continuing to work all the way to oil @ $150/barrel, where I would re-value. IT stocks were the best gainers last month, and I can see these growth prospects continuing to soar over the summer.

Hot Sub-Industries You Can Count On
While sectors may be a bubble term, you can find great growth out of companies in the same sub-industry. I have a few favorites picked out that I think will continue to fare well for the time being

Oil & Gas Drilling: Favorable industry conditions with increased capital spending overseas has the oil and gas drillers reeling from the recent run-up in the price of crude oil and natural gas. Consider Noble (NYSE: NE) and Chesapeake (NYSE: CHK)… two of my personal favorites.

Fertilizers and Ag. Chemicals: Definitely a long-term bullish prospect. The global food crisis in combination with higher demand for quality meat has these chemical and fertilizer companies pumping out seed on all cylinders. Check two of my favorites Potash (NYSE: POT) and Monsanto (NYSE: MON).

Hypermarkets & Super-Centers: This group comprises of popular recessionary winners in lower-end, bulk shopping destinations such as Walmart (NYSE: WMT) and BJ’s Wholesale (NYSE: BJ). I see sales growth continuing to be supported by a down economy, and competitive pricing initiatives present real opportunity.

Construction & Engineering: Don’t let the title scare you, the housing crisis really hasn’t been much of a turn off in 2008 for these construction companies. There is often a tie in with hot oil & gas and infrastructure markets, so this industry is ripe for the picking. Consider Jacob’s Engineering (NYSE: JEC) or Fluor (NYSE: FLR) for your portfolio.

Coal & Consumable Fuels: Coal is messy. Not doubt about it. But even with this in mind, it will probably be the cheapest and most efficient energy solution for a while… so I like to hold high-flying stars like Arch Coal (NYSE: ACI) and Peabody Energy (NYSE: BTU) for a balanced portfolio with international exposure.

Opportunities exist in today’s market. I feel that the Dow Jones Industrial Average’s 400 point down day on Friday has presented a fantastic buying opportunity for those interested in going long on some stocks. Don’t buy on Monday. My feeling is that the market will fall on Monday too, and start to recover only toward the end of the week. I recommend buying mid-week or whenever you see a rebound. But heck, even if you happen to miss it, if you nailed the sector down, you will probably have yourself a winner in the long run.

-The Net Fool

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