NEW YORK – “Picking stocks is really about picking the right sectors,” says James Floyd, co-portfolio manager of the Leuthold Select Industries Fund (assets: $7 million). This market-timing strategy is tricky, but Floyd and co-manager and company chairman Steve Leuthold have been successful so far.

From its inception last June, the fund’s total returns were 31.4% through the end of the year. In contrast, S&P 500 lost 10.6%. As of year end 2000, Leuthold Weeden Capital Management had $177 million under management in three public funds and private portfolios.

Floyd and his colleagues at Leuthold start with a universe of 125 industry groups, mostly drawn from S&P and Morgan Stanley Capital International classifications. From there, the 125 groups are ranked using 31 factors such as earnings and sales growth rates, price-to-earnings and price-to-book ratios, insider activity, price momentum, relative strength, and other technical and fundamental metrics.

While using 31 investment criteria might seem a bit unwieldy, Floyd and his colleagues assign the 31 factors into 8 categories, such as value, growth, insider activity and relative strength. Another category, called judgmental, factors in Steve Leuthold’s opinion. Very long-term momentum, the final category, is measured by using algorithms based on long-term upward trends in price and relative strength. Leuthold then cooks up a composite score for each of the 125 sectors.

Full story at Forbes.com

NEW YORK – Bollinger bands, Elliot waves, Gann analysis, Fibonacci retracements, breakouts and stochastics are terms used in the mysterious world of technical analysis. Technical practitioners pick stocks by looking for patterns and trends in price movement and trading activity.

Such analysis can get quite complicated, and the rules on how to interpret trends and patterns can vary according to market conditions. “Where technical analysts earn their money is knowing which technical indicators to use and when to use them,” says John Schlitz, vice president and director of technical research at Instinet Research.

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NEW YORK – The unemployment rate may have held steady at 4% for the month of December, but that hasn’t stopped the parade of grim headlines announcing job cuts at old- and new-economy companies such as Ameritrade, eToys, Fox, General Motors, Lockheed Martin, Sears and Xerox.

Is there a silver lining in the cloud of pink slips? “Some industries have been hurt by tight labor markets but, by their very nature, haven’t been able to benefit from the technological revolution that has offset higher wage costs,” says François Trahan, equity strategist at Brown Brothers Harriman. In particular, says Trahan, this has impacted sectors relying heavily on minimum-wage labor.

San Diego-based retailer Factory 2-U Stores (nasdaq: FTUS – news – people) is one of many retailers that could benefit from a cooling labor market. This company, which operates off-price stores in seven Western states, has traditionally found its hiring efforts hampered by larger competitors offering superior incentives.

Factory 2-U’s forward earnings multiple stands at 21, versus 26 for the retailing industry. The company is projected to post a relatively robust 28% average annual earnings growth over the next three to five years. “They are at their infancy in terms of growth,” says Annie Erner, vice president and retail analyst at Salomon Smith Barney.

Full story at Forbes.com

NEW YORK – While it will take time for the Federal Reserve’s surprise rate cut to work its way through most parts of the economy, investors are likely to target stocks that will be obvious beneficiaries of lower rates. Take, for example, companies in the timber and forest products industry.

“I think investors are going to shift their focus from weak profits today to ten or 12 months from now, when lower interest rates start to stimulate the housing market,” says Peter Ruschmeier, analyst at Lehman Brothers. Ruschmeier likes stocks such as Tacoma, Wash.-based Weyerhaeuser (nyse: WY – news – people), which are particularly well positioned to benefit from a lower interest rate environment. “Right now, earnings are very depressed in the wood-products business,” he says, “that’s why share prices of companies like Weyerhaeuser have sold off pretty heavily over the last 12 months.”

Full story at Forbes.com