FACTBOX: BofA-Merrill 2010 outlook bets on recovery abroad

NEW YORK (Reuters) - Bank of America-Merrill Lynch strategists on Monday unveiled their outlook for 2010, listing energy, industrials and technology among their favorite sectors for the year ahead based on expectations for a much stronger economic recovery abroad.

"We think the earnings of the S&P 500 will outpace the U.S. recovery," David Bianco, Bank of America's chief U.S. equity strategist told a briefing. Bianco noted that 40 percent of the earnings of S&P 500 companies now come from outside the United States.

The following is a snapshot of the bank's major themes for 2010:

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OVERWEIGHT-RATED SECTORS:

Financials

"Financial earnings should rebound strongly as banks stop adding to loan-loss reserves ... and net interest margins benefit from the Fed holding interest rates unchanged," Bank of America said.

It prefers larger universal banks "as they have higher loss reserves, less commercial real estate exposure and more diversified revenue streams from capital markets."

Energy

"Global oil demand (is set) to rise with the recovery of mature economies and the continued growth of emerging economies," according to the outlook. "The ability of oil supply to keep pace with demand growth will be a challenge but a challenge increasingly factored into oil prices during 2010 as confidence in sustained global growth improves.

Industrial

"(The sector) benefits from global growth, strong commodity prices, US exports and infrastructure stimulus spending ... ongoing Asian urbanization suggests rising demand for trucks, aircraft, climate control and energy."

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UNDERWEIGHT-RATED SECTORS

Healthcare

"Earnings at some of the largest healthcare stocks are at risk to uncertain U.S. healthcare policy and looming pharmaceutical patent expirations mostly in 2012 and beyond," the bank said. "We prefer healthcare technology companies that are less dependent on U.S. profits and less sensitive to policy changes."

Telecom

"We do not see any cyclical upside to our earnings per share estimates and are concerned about the long-term pricing power and growth potential," said Bank of America.

Consumer discretionary

"Given the predominant U.S. exposure of most S&P 500 retailers, and the home improvement spending exposure of two very large market cap constituents, we are cautious on the (earnings) recovery for retailing and their long-term growth potential."

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Bank of America rates the following sectors equal-weight: information technology, materials, consumer staples and utilities.

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WHAT TO AVOID:

- Equities of heavily indebted industries such as autos and airlines.

- Long duration U.S. Treasuries.

- Private purpose muni bond issues

- Dividend yield traps, or equities whose high dividend yields come from stock prices falling faster than dividends can be cut.

- Small-cap and regional financials, both equity and debt.

- Industries with large commodity inputs but that lack pricing power -- autos, airlines and consumer durables equities will face margin compression during the extended commodity boom.

- Old energy equities like utilities.

(Reporting by Edward Krudy and Ellis Mnyandu)