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Case for Investing in U.S. in 2011

The Political Landscape Turns Favorable

It's no secret that political powers took a toll on financial, health-care and education sectors as government officials turned the industries into dartboards.

As the chart above shows, key education, financial and health-care stocks are down sharply this year.

But that was 2010. In the coming year -- the third of President Barack Obama's four-year term -- stocks are expected to outperform as political pressures bode well for equities.

"If you want to run for re-election, you care about the year you're running in," Cantor Fitzgerald's Pado says. "In order to make things good in year four, you have to get things going in year three. It takes a year before whatever fiscal or monetary measures show their full benefit."

It's not quite 2011 yet, but Americans have already seen Obama push for extending the Bush-era tax cuts in a bipartisan surprise. Additionally, the president has pushed for a $120 billion reduction to the Social Security tax.

Dearborn Partners' Nolte warns investors not to get too caught up in the excitement of the extension of the tax cuts.

"The Bush tax cuts do nothing because it's status quo," he says. "It avoids the negative change that we would've seen, but it doesn't necessarily improve anything. At the margin, they have changed some of the Social Security withholding. But they didn't do it on the corporate side, so if someone hires you, they'll have to pay what they had to pay before.

Nolte goes a step further and suggests the impact of politics is hard to handicap. "The political environment moves so slowly," he says. "Even if you look at ObamaCare, it took well over a year to finally come to fruition. While we can speculate now as to what might happen, there will be lots of time before anything gets done."

Auxier of the Auxier Focus Fund is willing to take on the risks of political pressure if others aren't. He has been buying a basket of education and medical-device stocks, which he finds compelling.

On the education side, he's focused on Strayer Education (STRA) , Apollo Group (APOL) and Career Education (CECO), noting that the sector is "really hated. It's been attacked, and it's really cheap."

Medtronic (MDT) and Abbott Labs (ABT) , meanwhile, are in Auxier's group of medical-device stocks, which he calls "hopelessly out of favor" like the education companies.

"It's a reversion to the mean," he says. "It's like BP (BP), which we bought on the way down. You want to make sure, though, that these companies have the balance sheets to endure so you can get into some quality businesses that historically have higher premiums."

-- Written by Robert Holmes in Boston.

>To contact the writer of this article, click here: Robert Holmes.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
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