One of the toughest parts of investing is being in the right stocks at the right time. In general, sectors move together on a combination of factors: the macroeconomic outlook, changes in demand, materials costs and the regulatory outlook among other things. Based on those considerations, here are the sectors that I believe have the best prospects for a break-out year in 2011:

1) Rare earth stocks. Rare earths mining companies seek out or dig up deposits of rare earth metals – a collection of 17 chemical elements that are increasingly used in high-tech products from iPhones to wind turbines and electric vehicles. Rare earth stocks exploded upward at the start of the year on news that China is hacking exports of the metals by 35 percent through the first six months of 2011. That’s not good considering the fact that China produces 95 percent of the world’s rare earths supply. Rare earth mining stocks outside of China will have to make up for the plummeting supply in coming years. While shares in rare earths companies have cooled off recent weeks (putting several of them in the red since the start of the year), I fully expect the long-term trend to be intact. Among my favorite stocks in the sector? Avalon Rare Metals Inc. (AMEX:AVL), which is up 19 percent on the year.

2) Technology IPOs. A number of multi-billion dollar technology IPOs appear to be on the slate in 2011. From LinkedIn to Groupon, expect lots of press, surging prices and a good opportunity to make a quick buck. Check out my unofficial tech IPO calendar for 2011 to see all the tech companies that might IPO this year.

3) Oil stocks. Political turmoil coupled with rising demand pushed oil over $100 a barrel in London for the first time in three years. The IEA expects demand to grow 1.7 percent to 89.3 million barrels this year, and that’s pushing up share prices for the majors and small-cap exploratory companies as well. Shares in Exxon Mobil Corporation (NYSE:XOM) are up 13 percent since the start of the year.

4) Precious metal stocks. It’s been a tough start to the year for gold and silver as investors have cheered corporate profits and robust consumer spending. That’s had some predicting gold’s peaked, but I’m convinced the long-term outlook for gold – and particularly silver – is still up. Central banks became net buyers of gold last year, and they’re expected to continue that trend in 2011. The SPDR Gold Trust (NYSE:GLD) is down 4.5 percent and the iShares Silver Trust (NYSE:SLV) is up 2 percent since the start of the year.

5) Fertilizer stocks. Rising food costs are the product of inflation and rising demand. As producers try to cope with growing demand, they’ll rely on phosphates, nitrates and potash to try to squeeze more food out of the same acreage. That’s caused an explosive surge in small-cap phosphate exploration stocks. Allana Potash Corp. (CVE:AAA) is up more than 100 percent since the start of the year. Bellweather fertilizer stocks like Potash Corp. (NYSE:POT) and The Mosaic Company (NYSE:MOS) are both up more than 20 percent as well.

6) Copper stocks. The looming threat of a supply crunch has helped push copper prices above $10,000 per ton for the first time in history. Analysts are calling for a worldwide deficit of about 500,000 tons of copper this year, and that will help propel copper mining stocks after what’s already been a great start. Shares in small-cap and mid-tier copper stocks have performed the best to date with Augusta Resource Corp. (AMEX:AZC) rising 21 percent YTD.

7) Uranium stocks. Uranium prices have been on a tear rising 70 percent in the past seven months. In January alone, the spot price for uranium shot up 17 percent to $73 a pound. Uranerz Energy Corp. (AMEX:URZ) in particular has been shining with its shares up 35 percent this year. As countries around the world look to go green, nuclear power will get less press than wind and solar, but it will likely be the backbone of any plan to move away from coal.

8) Coal stocks. Flooding in Queensland and rapidly-growing demand in China have led to a surge in coal prices around the world. If oil prices remain high, coal will be the go-to substitute for power generation in many countries around the world. Year-to-date, the Market Vectors-Coal ETF (NYSE:KOL) is nearly flat, but its up almost 40 percent over the past six months.

9) Blue chip stocks. As the dollar begins falling relative to currencies in other countries, shares in high-quality, blue-chip U.S. stocks begin to look very attractive – particular blue-chip stocks with international exposure. The beneficial exchange rates should make U.S. exports look more attractive and will overfill the coffers at America’s biggest corporations. Shares in General Electric Company (NYSE:GE) are up more than 19 percent since the start of the year.

10) China e-commerce stocks. A recent report by Credit Suisse predicts that e-commerce will grow by 400 percent through 2015 in China. With most of the leading Chinese retail sites in private hands, investors on American exchanges don’t have a whole lot of options to cash in on the trend outside of the Amazon-like site E-Commerce China Dangdang, Inc. (NYSE:DANG). Taobao.com controls 75 percent of all e-commerce transactions in China. If they IPO in 2011 or 2012, I’d recommend cleaning up your portfolio and taking a long position.

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Tags: AAA, AVL, AZC, e-commerce stocks, fertilizer stocks, GE, GLD, KOL, large-cap stocks, MOS, POT, rare earths, SLV, uranium, URZ, XOM

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