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

Jimvesting’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.

Jimvesting 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.

-Jimvesting

The investing environment for oil & gas producers remains bullish in 2008, as record oil prices headline the news almost daily… and analysts see a lot more coming. Since Goldman Sachs predicted a two-year move to $200 in the commodity, people have had renewed confidence in buying up companies that deal with oil, and its cleaner alternative, natural gas.

There have been many doubters out there that you need to be made aware of. With the most recent dramatic upward spiking in commodities, many investors claim that prices are artificially inflated. While this may hold true, it does not mean they won’t continue to inflate artificially… making you money along the way. Despite the fact that all of these companies look expensive as heck, I think that the trend up will continue… and it’s always better to get in on the action than be sitting on the sideline, sucking your thumb.

Jimvesting’s Stock Performance
Back in January, I advised buying four energy superstars, all of which would have made you double-digit profits by now. Transocean (NYSE: RIG) is up 15.20% since my call back at $140.10, and I am still bullish on their solid oil drilling capabilities after their fantastic first quarter results on May 07, I’m maintaining a “buy” on the stock. If you bought into Schlumberger (NYSE: SLB), you’d be sitting on a nice 10.42% profit from my original pitch at $96.57. Schlumberger is the largest oil-services company in the world, so if you like the security of a large company… you’ll love SLB, who still has a lot of upside. My best recommendation in the sector was with Halliburton (NYSE: HAL) which would have given you a 31.70% return since my buy at $37.26. I think it might be time to take profits off the table on Halliburton, moving into another energy stock. The upside is still there, but I think your money would be better off elsewhere. Finally, XTO Energy (NYSE: XTO) has absolutely torn it up since my pitch at $53.88, rising for a 25.95% profit. XTO is an oil & gas exploration company that I maintain a “buy” rating on, still very bullish with plenty of room to move.

Where To Go Now
The energy sector as a whole has been rising off the charts over the past few months. But I don’t want you in the companies that are the staple crop of energy, your Exxon Mobiles and your Chevrons… go to source! I’m talking about the guys that are drilling the oil and natural gas directly, spinning them off for profits. Now you’ve heard from the drillers… I want you in those hybrid oil/gas companies like XTO Energy to capitalize on both markets and diversify risk. Personally, I’m much more bullish on natural gas than oil. I feel that the gas is much more valuable as an energy source but has been largely undiscovered compared to oil by the media, and hasn’t seen the same value appreciation that it deserves. So here are some cream of the crop hybrids with a favorable slant toward natural gas!

Chesapeake Energy Corp. (NYSE: CHK):
Chesapeake is the number one independent producer of natural gas, but still has a lot of hedged risk to thwart the volatility factor. It’s the number one driller with 254 rigs and has beaten the market over and over again with its superior hedging strategies. You can bank on the fact that they grew production by a bigger percentage than any other large-cap competitor. Lot’s of worry over the share price is cast toward Chesapeake, but they have performed past expectations time and time again, so you can sleep soundly with the fact that they have issued stronger guidance than any competitor in my opinion. There are some huge reserves that CHK has actively pursued, and I think the best is yet to come.

Anadarko Petroleum Corp. (NYSE: APC):
Well, they crushed earnings consensus of $1.22/share with $1.55/share… can’t say you couldn’t expect such stellar news from a great company that has been growing faster than the industry for a while now. This trade isn’t done yet, and after an upgrade by Lehman Brothers on May 16th, it’s clear that investors still see the upside. Following earnings, it feels like sunny skies all year long for Anadarko… a company trading at just 15.5 times earnings compared to an industry ratio of 23. APC has proven to investors that it can be the best in a high-growth industry… and I’m still buying.

Helix Energy Solutions Group (NYSE: HLX):
Helix does a lot of oil & gas production in the Gulf of Mexico, and I believe they fly largely under the radar in the energy sector because of their low market cap. Their new Danny-Noonan fields should really benefit earnings for 2009, and could even be a catalyst in 2008. But more importantly than new exploration activity, Helix has taken a hit that I feel is undeserved, essentially because of how their petroleum services unit is tied to their exploration unit. Because of this, Helix has one of the more attractive valuations in the sector. While they may not have the profit margins to beat out competition, HLX is a silent assasin with a low P/E of 11 and a chip on their shoulder.

Apache Corp. (NYSE: APA):
High operating costs and expenses were largely offset by earnings from high oil and gas prices as well as increased volume production over the first quarter. Apache has one of the best managed companies in the business, and I see them outperforming the industry in the long run… despite the fact that there are bordering target prices. Apache has benefited as well as anyone else from five major discoveries, and I feel that APA can fully explot their North American reserves to profit in a beaten-down market in 2008.

Average growth rates for natural gas drillers is 15%, so it’s really quite hard to find a loser in this environment. I see the following companies outperforming the industry in 2008: Chesapeake (CHK), XTO Energy (XTO), Anadarko (APC), Helix (HLX), Transocean (RIG), Schlumberger (SLB). I am rating these energy stocks as market-perform based on valuation: Apache (APA), Halliburton (HAL), Noble (NE), Devon Energy (DVN), Southwestern Energy (SWN).

One thing is for sure, the oil and gas explorers are outperforming nearly every corner of the market. These stocks are poised to outperform in 2008. My investment strategy would be to wait for a $5-$10 pullback in the price of oil before pulling the trigger on one of these companies, primarily because I do feel that the run-up was a bit too quick.

-Jimvesting

I’ve been tracking healthcare rockstar Intuitive Surgical (NYSE: ISRG) for about six months now, and have been impressed with their results… its astonishing to me that they are back to their late-October trading levels despite all of the hard work. After a terrific earnings call, including a 2008 guidance boost, shares of ISRG took a hit. Capitalize on the market’s mistake and unlock some growth!

So why exactly did ISRG slide downward after good earnings? They raised outlook, but perhaps not by enough. Kind of a ridiculous expectation, but we’ve grown accustomed to Intuitive’s 22 consecutive quarters of above-guidance outlook bumps that the $853.2 million sales forecast fell short of analyst’s $857.3 million dream. What’s more? Monday night, Jim Cramer came out on his show, CNBC’s “Mad Money,” and told us that the bullish run is done, and that you should “take gains here.”

Wrong. Wrong. Wrong.

Intuitive Surgical is fine. The fact that medical facilities are purchasing the pricey “da Vinci” robotic-surgery system sparingly in the near term is a cyclical theme… not a business problem! Hospitals loaded up on the system in the fourth quarter when it was most economical to do so… I think this is the future of surgery and everyone is going to want one in stock. Perhaps the outlandish P/E multiple will “catch up” in 2008, but its not going to stop this train from accelerating to the mid-$300 levels that it deserves to be trading around.

I’m a believer that robotic-surgery is the future, and Intuitive Surgical’s “da Vinci” program offers the best-of-breed solution. Think about it, elimination of human error and easier medical processes. This is like iRobot meets Terminator, and hey… ISRG is really bringing the heat. They sold 74 systems in the previous quarter versus an expected 68… which is a HUGE deal when each sale brings. Bottom line, these suckers are expensive, and a lot of hospitals have felt financially unable to buy them. But the tides are turning. The da Vinci Surgical System costs a rough $1 million plus maintenance and all the bells and whistles. It’s good to see the sales roll in!

So they are selling a multi-million dollar robotic system, so what? The thing is expensive, but people are paying up for the technology, which really improves things. ISRG announced a strategy to increase what they call the “field sales rep concentration” from five to four, unlocking new value where we might even see some facilities buying multiple systems. When you have each robotic arm running $175,000, you know that getting people to buy the thing is a big deal, and deserves a nice premium trading value.

I’m no technical analyst, but I’ve noticed a strange “box trend” in the stock chart. It seems to me that the stock has been traded back and forth over the last seven months between $250 and $350 with relative consistency. Well guess what, we’re back closing in on $250, and I think it’s time to get back in the game. ISRG is going to break the box soon, and I think this next run-up could do the trick. I would jump at the chance to pick them up under $268.37 (yes, that is a random number ), but you may not get the chance. The way I see it, I’m measuring about 25%-30% upside, with just 10% downside from current $282 values. Nice.

A lot of success in the future is going to stem off of how well they sell the surgical system. This may sound kind of “door-to-door salesmen” of them, but really the da Vinci system is capable of handling so many different procedures, so convincing relevant doctors that they need it is essential.

Replacement parts, recurring profits, maintenance fees, and flat-out sales have this company reeling. The fact that they couldn’t please the Street’s ridiculous expectations should be a non-factor in the long term. Intuitive Surgical is in the process of penetrating new markets, and this is one company you need to take a look at before there is a da Vinci Surgical System on every street corner.

-Jimvesting

Chances are, you have never heard of Harsco… an industrial company that does everything from on-site work outsourcing to roofing scaffolding, from railroad tracks to mineral air-abrasives. I recently made a “buy” pitch recommendation for Harsco as a manager of the Nittany Lion Fund. As a great company that is totally flying under the radar in my view, you need to take a look!

I can’t stress this enough. In this market environment, you don’t want to be making a speculative pick that carries a lot of risk. But you also want a growth company, and most of these are already valued too high. I found a solution in Harsco, an established 5 billion dollar company with an insane capacity for growth and not many investors “in the know.”

We’ll call Harsco our little secret

Harsco lacks any true competitors or peers in terms of industry expertise and geographic reach. So they are capitalizing on niche markets that no one else is competing in. They operate in three businesses: mill services, access services and rail & mineral technology. From Access Services, Harsco works with 5 of the top 6 contractors in the world, and are working on capitalizing in the Middle East and Eastern Europe. Harsco underperformed in Mill Services last year, but management is completely dedicated to improving this in 2008 by basically cutting the crap out and making things more efficient. Out of Rail & Mineral, Harsco has seen some great improvment. They are the #2 track company in the world (#1 in U.S.) and have made some great strategic acquisitions to improve their margins further.

So HSC has this profound niche exposure that nobody is touching. But what they have that others lack is a strong international exposure that is all too important in today’s markets. In fact, 70% of their business comes from outside the United States, and they expect to increase emerging market revenue from 19% to 30% by 2010. They are completely hedged against the U.S. dollar because of this internationally favorable currency exchange. So when the dollar falls, Harsco rolls… don’t worry, a good dollar isn’t too bad either.

This international exposure along with niche markets makes Harsco a clear-cut winner. They have had so many big contracts come in fast growing economies, and I think that recent wins in China, Dubai and Germany are just the tip of the iceberg. They are doing things like locking in contracts in Panama to complete the rebuilding of the Panama Canal, and their dealings in steel products have allowed them to capitalize on a consolidating global steel market.

The growth and value-added initiatives in tact have this company reeling. They currently use the EVA (economic value added) system in combination with what they call the “LeanSigma” system in order to pinpoint which areas of their business model are lagging, as well as how they can work to improve them. We’re talking renegotiated contracts, divestments, and the like.

Their last earnings call in January absolutely blew away expectations, and I anticipate similar success on their quarterly earnings scheduled on April 22nd. Typically, I have noticed a pattern of a pre-earnings run up, followed by a drop off after the announcement regardless of results. Maybe take this into account, but I see Harsco hitting $73 for twelve-months forward so look to purchase under $55.

This is a great mid-cap international growth play with plenty of room to run. They are focused on targeting expansion of their already dominate margins in 2008, so get in while the gettin’s good.

-Jimvesting

The typical recession advice says not to buy steel companies in a bear market. But this group of companies has been among the strongest performers year to date! Explosive steel demand has entirely outdone global supply. Despite the U.S. recession lag, global steel demand is expected to rise 5% a year. Whether you turn to the Middle East, India or China, buildings are going up daily, everywhere you look.

The most interesting market in my view is China, where they are anticipating 2008 crude steel demand to rise 11% versus a supply increase of just 6.3% (China Daily). Fast Money analyst Guy Adami says “the steel story is real,” and I don’t blame him. Let’s take a look at four of the best steel stocks money can buy!

U.S. Steel Corp. (NYSE: X)
I recommended U.S. Steel at $96.29 a share back on January 21, 2008. Today, they are trading at $140.70. I don’t mean to brag, but that’s a 46.121% return on your investment. Just a friendly reminder to trust the Net Fool!

Business as usual down at U.S. Steel is stronger than expected, and they are at a 52-week high… but I see them going higher! Why is X so special? Most steel producers need to offset higher ore costs with higher prices, but U.S. Steel has a unique integrated business model that includes self-sourced ore operations. Less exposure to the global iron ore market means potential to outperform by taking advantage of price increases without taking a hit on input costs like most other producers.

Wait for a good buying point on X, and you might be able to work in some extra gains off the top. I recommend waiting for something around $130, but who am I to discount their higher highs? I still trust steel, and U.S. Steel is still my X-factor for 2008.

Nucor Corp. (NYSE: NUE)
The recent run up in scrap metal prices, primarily due to higher than anticipated domestic & global demand, lower supply and higher-priced alternatives, has fueled a recent buying frenzy of scrap processors for Nucor. This is not a bad thing. Most notably, Nucor acquired Metal Recycling Services Inc. and said the deal “provides additional growth in the scrap metal sector.” NUE makes steel from recycled materials.

Why am I talking about this consolidation? I think Nucor is one of the smarter companies, and they are making all the right moves to vertically integrate their business. Estimates from most major firms are on the up-and-up because a lot of these deals are adding insane value and security to Nucor’s business. JP Morgan feels that rising metal spreads “are likely to result in significant margin expansion” for NUE, and I agree. Also trading near their 52-week highs, keep Nucor on a short leash.

Steel Dynamics Inc. (NYSE: STLD)
STLD is a great steel company, but i have fears that their fundamentals may have already juiced up the stock price too much. I feel that they have taken off too fast out of the gates, and you need to wait a while before jumping back on board.

That being said, Steal Dynamics is a stellar company that has eeked out profit from every corner of the market. Scrap prices have increased gross margins, “flat rolled” product pricing has outpaced input costs and even resource operations are outpacing profit expectations as demand rises.

I don’t buy the “concerns” many analysts have about STLD. Rather, I think that Steel Dynamics is one of the best in its class… but it is just not attractive enough to push more money into. Can’t get too greedy, they have nearly doubled since mid-January. This is definitely a stock to track though, and if something were to trigger a selling frenzy, I wouldn’t second guess buying on the way down.

Reliance Steel & Aluminum Co. (NYSE: RS)
Reliance is in a pretty favorable environment for growth right now, and I think they could definitely outperform in the short and long term. Things like better carbon steel pricing environments, strength in end markets (energy, oil & gas, aerospace), strong non-residential construction numbers and minimal discretionary exposure has Reliance Steel & Aluminum jumping beyond expectations.

Historically, Reliance Steel has been able to turn out huge revenue growth from smart acquisitions, I think they continue on this path (just purchased Dynamic Metals on April 2nd). Management has a great focus on improving performance where they are market leaders. In a consolidating steel market, this is a very important strategy. Trading around $62, I expect them to reach a target over $70 in 12 months, but I wouldn’t want to own them until I can get them closer to $55. Regardless, this is another winner in my eyes.

Bottom Line: Hindsight is always 20-20, and I wouldn’t be shocked if we turn around at the end of the year and say “gosh, why didn’t I buy at the 52-week highs?” I am too scared off by this run up to buy right now, but I am asserting that this industry has catalysts and all of these stocks are on my watch lists… just waiting to get my value.

-Jimvesting