With the start of the new year less than two months away, savvy investors are beginning to develo... Jack Sirard: Strategies to

Among the things to consider: possible changes that a new Federal Reserve boss might bring to the table, the course of oil prices and whether consumers will continue to spend.

To get a sense of where the market is headed next year, we talked with a pair of California investment professionals from both ends of the state.

James Walker, global investment specialist at JPMorgan Private Bank in San Francisco, believes that the stock market will be driven by corporate profits in 2006.

At the same time, Walker, like many analysts, believes that much of what happens next year will depend on what the Federal Reserve Board does, particularly under its incoming leader, Ben Bernanke, who was nominated last month to succeed longtime chairman Alan Greenspan.

Although the Fed has approved 12 consecutive interest rate increases, "I don't think that the transition to new leadership will be much of a marked departure than what we've had with Greenspan," he says.

"Wall Street is not expecting a big change with Ben Bernanke. But we do know that it will be important for him to quickly establish his credibility as an inflation fighter when he takes over at the March 28 meeting."

Walker expects the Fed to gradually increase the federal funds rate from its current level of 4 percent to as high as 4.5 percent by midyear. "At that point, it may be time to reassess where we are," he adds.

But he also thinks some companies will "have an opportunity to crank out some pretty good earnings. I think we're in a period when you can identify the coming winners by their strong cash flow, good management, vision and cost controls.

Rolle believes that stock valuations are the best they have been in the last 10 years, which gives investors a chance to buy some quality companies at decent prices.

For the best opportunities next year, JPMorgan's Walker says investors can look at a handful of industries: technology, pharmaceuticals and consumer staples.

At the same time, Walker believes that corporate America is likely to spend some of the billions of dollars it has been piling up on its balance sheets.

Many companies, he says, are likely to upgrade their technology for the first time in years, in an effort to boost productivity. As a result, for investors who want to be a bit more offensive with their stocks, he likes the software technology sector.

Rolle has a slightly different set of targets for investing. He advises investors to zero in on the ongoing worldwide need to replace infrastructure. With global economies expanding, he says high-end companies like Caterpillar Inc. will benefit.

"They will have more and more needs for such things as retirement planning and money management. Look at banks and financial services companies, as well as life insurance companies selling annuities," he says.

Rolle manages his firm's Large Cap Premier Equity Fund, so it comes as no surprise that he thinks large-cap stocks will be the place to be next year.

While the average large-cap fund gained just 1.6 percent through October, his fund shot up 10.6 percent as he made selective investments in the sector.

His fund (ticker symbol TEQUX) carries Morningstar's highest rating - five stars. Among his big winners and largest holdings this year are Genentech Inc., Chicago Mercantile Exchange Holdings Inc. and WellPoint Inc.

His advice for investors is to look for companies or industries that are undergoing a positive change. You want to own the very best company (one with rising sales and profits, as well as innovative products and services) in targeted industries, he says.

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