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.