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Since last Tuesday's dramatic market-wide sell-off, I've been getting a lot of emails from folks asking me what stocks I think are the most vulnerable in these market conditions.

Until the dust settles, I think that retail stocks, technology stocks and financials will be the most vulnerable.

But I also think that a host of other groups that depend on an optimistic consumer mindset could get hit too.

Why?

It's simple. Until the average person senses that the economy and the market have leveled off, they're going to be little more reluctant to spend their hard earned money.

That said, I think that the most "at risk" stocks would be:

Semiconductor Stocks
Lack of near term demand for electronics equipment will hurt companies such as Advanced Micro Devices (AMD) and Intel (INTC). Incidentally, by extension, I think this could adversely impact the bottom lines at Best Buy (BBY), and Circuit City (CC) which still have a relative glut of flat screens that they are looking to unload.

High End Retailers
While I am not singling out these companies, AnnTaylor (ANN), Coach (COH), and Liz Claiborne (LIZ) look vulnerable. After all, if you think that people are still going to be buying $75 sweaters and $300 purses in droves over the next couple of weeks -- think again.

Airline Stocks
AMR Corp's (AMR) American Airlines, Continental (CAL), and JetBlue (JBLU) -- which is already having a tough time on the PR front should be avoided. I suspect that folks might pare down their vacation plans in the face of a declining market.

Financials
Merrill Lynch (MER), Lehman Brothers (LEH), and Bear Stearns (BSC) are vulnerable. Remember there's bound to be a lot of trading losses experienced by these firms during the first quarter. Also, don't expect too many IPOs if the market continues to languish.

Auto Makers
Ford (F) and General Motors (GM) – don't even think about it. Oil prices are expected to rise as the weather warms and demand perks up. This combined with consumer skepticism can be deadly.

Homebuilders
Toll Brothers (TOL) and Hovnanian (HOV) both come to mind. After all, both are fairly high end players, and both have sizable exposure to the Northeastern U.S., where new home sales are slumping.


Also, stocks with lofty valuations such as Google (GOOG) come to mind. Look instead at companies with hard, tangible assets.

As well, steer clear of companies with potentially sticky situations. Sears (SHLD) comes to mind because of its credit card/financial business, as higher customer default rates could spell trouble. Oh, and for small cap stocks in general, remember that in difficult times there is often a flight to quality.

The Bottom Line
I'm not saying that the above stocks should be avoided forever. Rather just until the dust settles. Remember, even a couple of weeks of lingering doubt in consumer's minds can adversely impact first quarter results.

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