3 Sectors to Buy After the State of the Union

The tone of this year's State of the Union speech is being touted as much friendlier to business, and much more focused on creating jobs and getting the nation's economic engine going again than any speech President Obama has ever delivered. The president spoke of corporate tax cuts, and a five-year partial federal spending freeze that he said would cut $400 billion from the deficit over a decade. That news was welcomed by Wall Street, but perhaps the most important lines of the speech, at least for investors, were the president's targeting of sectors he thinks the nation should "invest" in. The speech singled out three particular sectors that Mr. Obama wants to funnel taxpayer dollars toward—biotech, information technology and green energy. Here's the money quote from the State of the Union that could translate into a boom for these sectors: "This is our generation's Sputnik moment. Two years ago, I said that we needed to reach a level of research and development we haven't seen since the height of the Space Race. In a few weeks, I will be sending a budget to Congress that helps us meet that goal. We'll invest in biomedical research, information technology, and especially clean energy technology – an investment that will strengthen our security, protect our planet, and create countless new jobs for our people." When a president telegraphs the government's preference for specific industries the way Mr. Obama did, investors should take note. And regardless of whether you think it's appropriate for the federal government to choose which private industries to redirect taxpayer dollars, the fact is it is happening. Moreover, given the spending tendencies in Washington, you can bet that the largess going to these three sectors won't be a mere pittance. Translation—we could see a flood of new capital headed toward biotech, IT and green energy. Now, one thing nobody knows just yet is which companies in these particular sectors are going to profit the most from the government's spending spree. Until the budget is revealed, hashed out and passed, it really is just a guessing game as to which corporate entities benefit the most. But a lack of knowledge as to the specific companies getting money can be overcome by adding a basket of company exposure to these sectors via exchange-traded funds (ETFs). Here are a number of ETFs and individual stocks that investors should keep an eye on going forward. Biotech Stocks The president didn't say specifically what kind of spending would be pegged for biomedical research, so we are left a bit in the dark about exactly which segments of the biotech space will be getting federal money. That's ok though, because investors can get exposure to the entire sector via the biggest, most liquid and broadest-based ETF in the space, the iShares Nasdaq Biotechnology (NASDAQ: IBB ). This fund, which seeks to mirror the price and yield performance of the Nasdaq Biotechnology index, was up nearly 15% in 2010. The red-hot sector fund also recently hit a multi-year high. Top holdings in this fund include Amgen (NASDAQ: AMGN ), Celgene Corporation (NASDAQ: CELG ) and Gilead Sciences , (NASDAQ: GILD), all big name biotechs that will almost certainly be on the short list to receive some federal biotech research bucks. Information Technology Stocks The president singled out Google (NASDAQ: GOOG ) and Facebook as examples of American technological ingenuity, but he also said that taxpayer dollars were responsible in large part for creating the Internet. Look for IT infrastructure firms, and wireless infrastructure companies to capture a good dose of taxpayer capital when the spending spree begins. For Internet infrastructure company exposure, look at the Internet Architecture Holder (NASDAQ: IAH ). Top holdings here include tech stalwarts IBM (NYSE: IBM ), Cisco Systems (NASDAQ: CSCO ) and EMC Corp. (NYSE: EMC ), and though these companies may not receive any taxpayer dollars directly, the boosted spending in the space could have a spillover effect on the entire sector.  As for wireless infrastructure companies, look at the Wireless HOLDRs (NYSE: WMH ), which has as its top holdings Crown Castle International (NYSE: CCI ), Qualcomm (NASDAQ: QCOM ) and Verizon (NYSE: VZ ). Green Energy Stocks The president said he wanted to end oil company subsides and shift from conventional fossil fuels to clean energy over the next couple decades. Now, we've heard talk like this before, and each time we hear it more money gets shunted toward solar, wind and nuclear energy spending. That's great for those sectors, as they actually have a hard time making it without federal subsidies. Of course, we don't know which alternative energy stocks are going to benefit most from new federal spending just yet, but we do know that we can cover most of our bases with one ETF. That fund is the PowerShares WilderHill Clean Energy (NYSE: PBW ). This ETF includes solar standouts Trina Solar (NYSE: TSL ), Renesola Ltd. (NYSE: SOL ) and JA Solar Holdings (NASDAQ: JASO ), but it also holds wind energy firm Broadwind Energy (NASDAQ: BWEN ) among other top alternative energy companies. Disclosure: As of this writing, Jim Woods did not own a position in any of the stocks named here.
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