The Trends to Watch

2011 is here, and evidence that we are about to see better economic growth, corporate profitability, and yes, higher stock prices in the New Year is piling up! A warning though: Markets like this one are tricky to navigate and full of dead ends for the unprepared investor.

I’ve identified nine GameChangers that will affect your money in 2011. Read on to find out which trends will move the markets and help you profit in the New Year; where you should – and should NOT – put your money, which sectors will be hot, and just how high the indices will go.

#1 – China Will Keep Up the Torrid Growth

Markets around the world breathlessly watch China to see how it is managing inflation, fearing that the Chinese juggernaut will slow too much. Well, yes, growth probably will slow, but most analysts expect that. A fall from 10% annual growth to 7% to 8% in the coming years is already priced in their calculations. Not to mention that an economy that is growing at 7% to 8% is doing just fine! The true risk with China is that too many investors are playing yesterday’s winners. Entrepreneurialism, higher wages, insatiable energy consumption and a middle class that keeps growing and purchasing are unstoppable trends in China in 2011. The smart way to make money in China these days is by going after the companies that will profit from those trends, like China Nepstar Chain Drugstore (NYSE: NPD). Read about 3 risks to avoid when investing in China stocks.

#2 – Commodities Stay Hot, Get Even Hotter

Gold will hit $2,000 in 2011, but that’s not where you should put your money, no matter what Wall Street wants you to think. The real story is scrap metal, steel and coal. Demand for scrap metal remains strong in China, India and Turkey, with international scrap metal prices recently crossing the $400 per ton mark. China is already using more coal than the U.S., Europe and Japan combined, and its need for coal is only expected to keep growing. And the demand for palladium and platinum is so great that thieves are actually stealing catalytic converters from cars to get at the precious metals contained in them! My Breakout Stocks Under $5 members and I are profiting from high commodity prices by investing in a scrap metal recycler and an American coal company operating in China.

#3 – Dow 13,000, S&P 1,400

We’re finally starting to see true top line revenue growth for companies, not just increases from cutting expenses. That will make for strong earnings seasons in 2011, particularly since equities are undervalued vis-à-vis their earnings potential. Buoyed by this growth and by money rotating away from bonds and into stocks, the Dow Jones will hit 13,000 and the S&P 500 will cross the 1,400 mark by the end of 2011 – roughly a 13% gain for both indices from current levels. Savvy investors who get in on stocks now will profit from all the growth to come in the New Year.  Read about 6 stocks that could double in 2011.

#4 – Inflation Looms on the Horizon

While we don’t have to worry about inflation just yet, the printing presses are on full throttle at the Mint, which could lead to inflation in 2011. Food and energy prices, while typically excluded from the Core Consumer Price Index measure of inflation, are expected to rise in the first half of 2011. On top of that, as commodity prices go up, companies may have trouble passing their higher costs on to consumers, though many of them will certainly try. For now though, inflation won’t be an issue for investors. Read about your 10-step guide to surviving inflation on InvestorPlace.

#5 – Homebuilders Have Another Tough Year

Beware homebuilder stocks! Don’t be fooled into thinking that homebuilders are ripe for a turnaround, because 2011 will NOT be their year. The housing market is still struggling, and many homebuilders are competing against the bargains that buyers are getting through short sales and foreclosures. Unemployment remains at 9.8%, first-time buyers have a harder time qualifying for a mortgage, and existing owners looking to trade up or downsize can’t commit to building a new home until they sell the one they already own. These problems will not go away for homebuilders in 2011. Investors looking for a turnaround would do much better to look to financials in the New Year. Read about Hilary Kramer’s top 2011 financial stock on InvestorPlace

#6 – Forget Solar and Wind! Natural Gas Will Be the Big Winner in 2011

Natural Gas will be the energy story of 2011. Sources tell me that the long awaited natural gas legislation that Congress has been debating is likely to finally pass next year. Legendary oilman T. Boone Pickens has thrown his considerable weight behind the bill, and he is using every resource at his disposal to turn this bill into reality. Combine those winds of change with rising oil prices, and we should see bipartisan action once the new session of Congress begins in January, which will provide considerable momentum for natural gas companies in the New Year. My top natural gas pick right now is Westport Innovations (NASDAQ: WPRT) which develops and sells systems that allow cars and trucks to run on natural gas instead of diesel or gasoline.

#7 – Biotech Takes Off

Many of the big pharmaceutical companies are in a precarious position right now. They’ve cut costs as far as they can and many of their blockbuster drugs are going to go off patent in the next three years. The next logical step in big pharma’s search for growth is to start going after biotech firms with a drug or two in the pipeline. Plus, as companies start to feel more confident in the new, more corporate-friendly environment in Washington, merger and acquisition activity is sure to pick up. That’s not to say that investing in biotech doesn’t still have some risks – because it certainly does – but find the right biotech stock and you could find yourself sitting pretty. The key is to look for companies that are both candidates for acquisition and just plain good buys. A biopharmaceutical company I like that is also ripe for acquisition is Shire Plc (NASDAQ: SHPGY).

#8 – The Bond Bubble Bursts

Yields on bonds have risen sharply since November 4, the day after the Fed announced its massive QE2 program to purchase $600 billion of Treasury bonds. The rate on the 10-year bond rose 33% in just six weeks. Higher yields mean the price of the bond is falling as investors in search of growth move their money out of bonds and in to “risk assets” – a.k.a. stocks. This trend will continue in 2011, as first institutions and then individuals jump on the bandwagon. Eventually enough money will flow into equities to burst the “bond bubble”. Read about what investors should know about bond bubbles on InvestorPlace.

#9 – The Individual Investor Comes Off the Sidelines

The indices have all seen massive gains since the March 2009 lows – the Dow is up 76%, the S&P 500 has gained 86% and the NASDAQ is up a whopping 110%. These gains have occurred largely without the participation of the individual investor. Too many investors are in real danger of missing more sizable gains as they park their money in anemic savings accounts, CDs and bonds (some actually at a negative yield now), waiting for signs of economic strength. As the bond collapse starts moving money back in to stocks, it will provide further fuel that keeps the rally going strong.