U.S. stocks are at the bottom of many international investors’ wish lists for 2011, which sets up the contrarian paradox: when too many investors agree about something, they are usually wrong.

“[This] year might be quite a good one for investors in the world’s biggest stock market,” says Tom Stevenson, money manager with Fidelity Investment Managers in London.

His view is shared by a fair number of global managers and strategists. It is, though, more optimistic than analysts with Standard & Poor’s Corp. in New York, who expect profits for the companies in the S&P 500 composite index to increase by an average of just 13% this year vs 47% in 2010.

One factor that will add support to U.S. stocks this year is a swing by retail inves-tors back to dividend-paying equities. That shift comes in response to suddenly dropping bond prices as investors anticipate rising interest rates later this year.

Other factors are continued strong growth in emerging markets and any stronger than expected growth in Europe or Japan, as that will benefit many U.S. firms. Companies in the S&P 500 composite index that report foreign sales generate 47% of their sales outside the U.S.

The most important determinant, though, will be U.S. economic growth. Most economists expect it to be moderate because of high unemployment and lingering consumer caution. But it’s possible that the U.S. Federal Reserve Board’s second round of quantitative easing — combined with the removal in mid-December of corporate and investor uncertainty about tax rates in 2011 — could result in stronger than anticipated growth.

For Canadian clients, the exchange rate is important. Most economists think the loonie will remain around par with the greenback; but some think the Canadian dollar could appreciate some more, which would be negative for returns on U.S. investments when translated into C$. (For more on currencies, see page B6)

Here is a summary of analysts’ views of the outlook for U.S. equities and their weighting recommendations on sector-by-sector basis:

> Sectors To Overweight:

> Information Technology. The U.S. remains a world leader in this sector despite the advance of Asian high-tech competitors, in part because U.S. companies are willing to invest to improve productivity. Semiconductor sales have been strong, indicating customer optimism and pointing to future gains by semiconductor equipment-makers.

The largest high-tech companies — Cisco Systems Inc., Microsoft Corp., Intel Corp., for example — remain portfolio favourites. But others, such as EMC Corp., Oracle Corp. and Qualcomm Inc., are benefiting from rising prices.

Among software providers, analysts favour Citrix Systems Inc. and VMware Inc.

New technologies can do well. In “cloud” computing — using hardware and software over the Internet — important providers include Salesforce.com, Amazon.com Inc., Google Inc., Dell Inc., VMware Inc. and NetApp Inc.

In biometrics, which provides identification systems for security purposes, the players include Computer Sciences Corp., International Business Machines Corp., NICE Systems Ltd. and Unisys Corp., as well as non-IT companies, such as 3M Co. and Lockheed Martin Corp.

> Industrials. This sector — usually fast off the mark in a stock market recovery — has maintained share-price momentum going into 2011.

Lately, transportation stocks have been the strongest part of the industrial sector, with railways matching air freight in investment appeal as the former improve their efficiency.

A real boost in infrastructure investment is part of the basis for bullish expectations for this sector. This is already reflected in the strong gains in the construction and farm-machinery industry, and analysts also expect increased sales in emerging countries. Industrial machinery companies’ shares have been gaining strongly and are expected to continue to rise. Illinois Tool Works Inc. is a typical recommendation.

Institutional investors favour General Electric Co., United Technologies Corp. and 3M. Among smaller companies that should have more profit potential, Fastenal Co. and FedEx Corp. are current analyst favourites.@page_break@> Materials. Diversified chemicals, whose recent share-price momentum trails only that of U.S. metal stocks, is the largest component in this sector. Industrial gases and fertilizers, next largest, has recently been among the sector’s laggards.

Analysts give top rating to Ecolab Inc., maker of cleaning and sanitation chemicals. Other highly rated companies include E.I. DuPont de Nemours & Co., Owens-Illinois Inc. and Praxair Inc. Analysts also project Dow Chemical Co. will score the largest earnings gain in 2011. Sigma-Aldrich Corp. has been attracting attention because of its pioneering work in biochemistry.

> Sectors To Hold At Market Weight:

> Energy. This is the largest sector with a “market weight” recommendation, and the rise in oil prices late in 2010 could result in an upgrade to “overweight.” The sector trades at a relatively low 11 times forecast earnings.

Oil and gas equipment and services led over the past year, and the sector’s earnings recovery is expected to continue. Schlumberger Ltd. is currently the most favoured company in this category.

Energy fits into investors’ drive for dividend income because there are as many dividend-paying companies in this sector as there are in utilities. Dividend yield for the energy sector matches the yield on the S&P 500 composite index, at a recent 2%.

The big integrated oil companies have been among the strongest stocks in total return. Currently, Chevron Corp. is the favoured stock in this category. Exxon Mobil Corp. is the long-term leader, and qualifies as a member of S&P’s “dividend aristocrats.”

> Financials. With an average dividend yield of 1.2%, the second-lowest yield among S&P 500 sectors, financial services stocks have little appeal in the current dividend-focused investing climate.

Undercapitalization is a major problem in banking. As housing prices continue to fall, banks are under more stress and failures occur every week.

> Consumer Discretionary. These stocks boomed in 2010 — eclipsing consumer staples, which were expected to lead — but earnings are expected to slow in 2011.

Restaurant chains are favoured stocks, including Darden Restaurants Inc. and McDonald’s Corp. In apparel, Chico’s FAS Inc. is the analysts’ top choice.

> Consumer Staples. Earnings growth has been progressively weaker over the past three years, with another smaller gain expected in 2011. This sector has defensive appeal and a dividend yield of 3.1%.

Among stocks considered “low risk” by S&P’s analysts are ConAgra Foods Inc. and General Mills Inc.

> Telecommunications services. The dividend yield for this sector is the highest, at 5.5%, but there are only six dividend-payers in the S&P 500 index. Share-price gains have been trailing the market recently.

Only one stock in this sector (American Tower Corp.) is among S&P’s top-rated, five-star stocks.

> Sectors To Underweight:

> Health Care. This is the largest sector with an “underweight” recommendation. There are two red flags: its weighting in the S&P 500 composite index has been dropping, and its dividend yield is a low 2.2%. Investors are also cautious because of a lack of clarity surrounding some aspects of the Obama health-care legislation.

Biotechnology is the growth category in this sector, and the diversity of active companies suggests an exchange-traded fund or mutual fund would be an efficient investment solution.

> Utilities. This sector disappointed in 2010 and it ranks low in analysts’ opinion for the coming year. Valuations are high, increasing risk, but the sector does offer the second-highest average yield, at 4.5%. IE