If it was difficult gauging the outlook for the U.S. market in the past, it is much more so now. Economic challenges are the greatest in a century, and uncertainty about government policy will persist until the presidential election in November. Nevertheless, most analysts believe, as the latest version of the Value Line Investment Survey puts it, that “the U.S. economy is sufficiently resilient to keep earnings trending irregularly higher next year and for stocks to press forward in kind.”

Furthermore, stock purchases by corporate insiders are bullish again — and that is usually a signal of confidence for six to 12 months ahead. Defensive stocks and dividend-paying stocks are favoured, as well as lower-risk industries. Canadian investors will find many prospects in U.S. consumer industries and high technology — sectors with little representation in Canada.

Within these sectors, multinational firms have appeal because their size enables them to withstand economic blows that would cripple smaller firms. Multinationals have built-in geographical diversification as well as strong and, in many cases, improving balance sheets; half of the firms in the S&P 500 composite index had cut their debt in 2011.

A major reason to invest in multinationals is to get exposure to emerging markets. Although there are some near-term risks — particularly, a hard landing in China — most analysts expect emerging Asia and Latin America to continue growing.

“I’d rather participate in emerging markets by buying U.S. multinationals that get 50% or more of their revenue [from] abroad,” says Joe Rosenberg, chief investment strategist with New York-based Loews Corp.

For example, energy firm Chevron Corp. derived 73% of its sales in 2010 from outside the U.S. Colgate-Palmolive Co.’s percentage was even higher, at 77%. General Electric Co., Hewlett-Packard Co., Intel Corp., Oracle Corp., Pfizer Inc., 3M Co. and Johnson & Johnson had more than half their sales originate outside the U.S. — or the U.S. and Canada.

Multinationals also continue to seek expansion abroad. Kraft Foods Inc. reports India is a key market in its growth strategy. Pharmaceutical firm Eli Lilly & Co. will continue to invest in China despite the challenges, including intellectual property theft.

Another reason to consider multinationals and other large-cap U.S. firms is that most pay dividends and have a history of raising them regularly. Corporate size cuts risk, including the risk of dividend cuts or omissions. More than 300 companies in the S&P 500 composite index had increased their payment in 2011 or paid an initial dividend; none omitted a payment.

If you weight the sectors of the S&P 500 composite index by dividend payments, consumer staples is at the top. It accounted for almost 16% of dividends in 2011 — well above its sector capitalization weighting. Health care, industrials, information technology and energy each contributed between 10% and 13% of the S&P 500 composite index’s dividends. The financial services sector, which is not in favour, provided 12% of dividends.

Analysts with Standard & Poor’s Financial Services LLC recommend emphasizing consumer and IT stocks, as they are either defensive or lower-risk. Consumer staples have the added appeal of offering the third-highest average dividend yield, after the telecommunications and utilities sectors.

Within the energy sector, U.S. integrated oil and gas companies have appeal for clients who want conservative energy exposure. These companies have long-term stability and pay steady dividends.

As for U.S. financials, they are troubled because of lingering loan and mortgage risks and the dearth of lending.

U.S. telecom and utilities stocks lack appeal, as they appear fully priced after a couple of strong years. Telecom has the highest price/earnings multiple on expected earnings among the 10 sectors, and analysts foresee little change in utilities’ earnings.

Here is a closer look at some leading stocks in the sectors that S&P recommends “overweighting” or “market weighting”:

> Consumer Staples And Consumer Discretionary. Restaurant chains continue to gain despite tightened consumer spending. McDonald’s Corp. stands out among the large-cap stocks. Two chains with some Canadian presence are growing: Panera Bread Co. and Buffalo Wild Wings Inc.

In the food-processing industry, ConAgra Foods Inc. has beaten growth estimates. Altria Group Inc. leads the tobacco sector, thanks to a 5.6% yield. Although Costco Wholesale Corp.’s dividend yield is only 1.2%, it’s also worth considering, given expectations of a 14% earnings gain.

Retail stocks had rallied late in 2011, which suggests they may continue to be strong performers. Leaders in this group are “dollar store” chains Family Dollar Stores Inc., Dollar Tree Inc. and Dollar General Corp.

> Information Technology. Dividend yields are lean in this sector, but more firms are paying them — and increases are frequent. IT accounts for about 20% of the U.S. stock market and about 11% of the dividends paid. Qualcomm Inc. is a stock to watch, as it is a main supplier of chipsets for mobile devices. (See story on page 33.) The consensus estimate is a 12% rise in its 2012 earnings.

Analysts expect continued strong growth by credit-card services firms Visa Inc. and MasterCard Inc. Estimates for both firms project 17% earnings gains in 2012. Automatic Data Processing Inc. has appeal for its combination of a 3% yield and steady earnings growth. Although ADP is not considered a multinational, 19% of its revenue comes from outside the U.S.

Security on the Internet is a growing challenge for businesses, governments and individuals. Thus, firms specializing in Internet security are attractive. In particular, a recent new share issue from Imperva Inc. is attracting attention. Fortinet Inc. and F5 Networks Inc. are also favoured by analysts.

> Health Care. For a variety of reasons, there is revived interest in major pharmaceutical stocks. Pfizer Inc., Bristol-Myers Squibb Co. and Amgen Inc. are among the leaders — and they are dividend payers.

Medical-technology stocks fared poorly in 2011, but one continues to grow strongly: Intuitive Surgical Inc. The company remains an analyst favourite because of its lead in robotic surgery. Its earnings are expected to increase by 19% in 2012.

Changes in U.S. medicare favour some managed health-care firms. UnitedHealth Group Inc. and Centene Corp. are leaders, and analysts view Metropolitan Health Networks Inc. as a potential growth stock.

> Industrials. Railway company CSX Inc.’s earnings are expected to rise by 14% in 2012. Ryder System Inc., which provides trucking and logistics services, is looking at a 17% earnings gain. Both companies’ stocks have a dividend yield of around 2.2%.

Pall Corp., a manufacturer of filtration and separation equipment, is another favourite. Analysts estimate that Pall’s earnings in the fiscal year ending July 31, will grow by 16%, followed by a 12% rise in the following year.

Two firms that provide a wide range of equipment and supplies stand out: W.W. Grainger Inc. and Fastenal Co., whose earnings are expected to rise by 13% and 17%, respectively, in 2012.

Pentair Inc., a manufacturer of water-treatment equipment and enclosures for sensitive electronic equipment, has a consensus forecast of an 11% earnings gain in 2012. The firm expects to boost its international sales to 40% of revenue from the current 34% within a couple of years. IE