Where to invest in 2006?

Before I start giving my picks, let me start by giving you an idea about the kind of investments that I look for. I would classify myself as a combination of growth and value based on the sector.

I am bullish about energy. I think I will be bullish about energy right till my retirement age (2040). I think firms providing oil exploration & drilling services (oil infrastructure) will have a banner year. With the demand of oil closing in on supply, there is a need to develop new oil fields. As the oils firms start increasing the capacity and developing new fields, these oil infrastructure firms will get the economic rent out of the whole chain of companies working to develop new fields. Next couple of years will be great for the current leaders. With time, new players will enter the market to make the industry profit more in line with normal economic profit. A couple of important points to look for in this sector are firms with low P/E, good management and high exploration investment.

I always like buying firm whose products and services are in demand and I think Oil services may be the ones for 2006. Where do I get the above logic. Well sometime back I was looking to buy a oil field with 14 wells in Midwest. The price was $5 million and oil was 45-50 then. Though there was a lot of oil underground, the field was not developed and half teh wells were not working. The current annual output was around 4000-5000 BPY. After including all the production cost and royalty payment, I was getting around $34/barrel Not with that kind of oil coming out, I couldn't sustain a 4 million debt to finance the field. So, I tried to find out if I can get other wells repaired or drill more wells. The owner said that all the repair/drilling guys are busy and unless you pay 50% premium there is a long wait. BTW, within 6 months, oil was 70 :) and has never been below 57 after that. That's another matter, but this experience got me thinking about the importance of oil infrastruture firms in current environment.

On the other end, as the oil price will increase, a whole lot of other sources of energy will become relatively cheaper - solar power, wind energy, oil from canadian sands and ethanol. I look to invest in leaders in their space.

Other than the energy stocks, I have a close eye on the comodities. I have not found something exciting, but if the prices drop, you can count me to pick up some bargains. I am gold pessimist and have been predicting a reduced return since gold reached 450. Current gold prices are 570, I like Buffet's waiting strategy. And in this huge worldwide financial market system, there are ample opportunities where you will feel comfortable if you wait.

I will also be looking for small health care firms that have or are close to acquiring new drug or drug delivery mechanism. I look for firms that already have revenues and use this new product as a stock price booster. So, I am not looking at one drug wonder.

Finally, I will look at investing in some technology stocks and international ADRs. I think emerging markets will outperform developed countries' stock market in 2006