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Recovery is the word on the lips of almost every investor – and with good reason. After two years of stock market losses and a long period of sluggish economic growth, everyone is hoping that 2002 will be the year when the economy soars and the market resumes its 'normal' upwards trajectory.

The portents certainly look good. Unemployment is in check, interests rates are low, inflation is low, and consumer confidence is high. Unfortunately, the market is very sluggish. Many companies still have poor revenue visibility, many analysts feel valuations are still historically high, and just when the FTSE gets up a head of steam, along comes a Marconi or an Enron to dampen spirits.

Therefore, to secure good gains in the year ahead, you will not only have to pick the right stock, but you will have to pick it at the right time and in the right sector. To help you through the financial maze, we have assessed the most important sectors and the stocks that we think are most likely to thrive. Our top tips are the Support Services, Leisure, Entertainment & Hotels and Software & Services sectors – but there are many individual attractions elsewhere.

Mining – rich seams remain

Mining shares outperformed the market last year. The FT mining index rose 22 per cent over the past year, when both the Footsie 100 Share index and the AllShare index lost around 14 per cent.

Prospects for 2002 hinge on continued corporate activity and base metals bouncing on the prospect of a US economic upturn. Individual deals and new projects should help, while big takeovers – à la Normandy – could offer added spice.

Platinum miner Lonmin, at £10.97, has pleased investors by returning cash and is poised to re-denominate its capital in US dollars. Harmony at 480.5p, Aim-listed Aquarius Platinum at 313.5p and European Diamonds at 181.5p could repay a punt, as could Aussie-listed Newcrest at 155p. Gamblers might consider Eurasia Mining at 15.25p, Firestone Diamonds at 72p and Ofex-traded Twigg Minerals at 9p.

Food Producers & Processors – tasty morsels

Given the vast array of companies issuing foot-and-mouth related profit warnings last summer, you would be forgiven for thinking that many food producers and processors had struggled. Instead, several went on to achieve great things. Chilled foods supplier Geest's 22 per cent increase to 724.5p has been the smallest rise. Cranswick, which produces pork-related products, including sausages, hams and pies, was the star, its shares more than doubling to 795p. Strong gains were also served up by Inter Link Foods and Richmond Foods. However, caution is needed in this sector. As Nicola Mallard of ING Barings points out, how the sector performs in 2002 is once again likely to depend heavily on 'what everyone else is doing'. Signs of a strong economic recovery could drag investors' attention elsewhere.

Retail – be careful who you back

Retail was 2001's surprise package, with a horde of businesses trading strongly despite the lingering shadow of an economic downturn. But with many stocks now seemingly fully valued analysts predict a more difficult start to 2002. With average borrowing levels higher and little prospect of further interest rate cuts Teather & Greenwood's David Stoddart believes that 'the situation for consumers is different now'. One company that Stoddart does believe is well set, however, is games retailer Electronics Boutique.

Software & Computer Services – still speculative

Valuations in this sector are still quite high (relative to the market), but, following two dismal years, many analysts are forecasting the first green shoots of recovery in 2002. In particular, hopes are being pinned on those companies that enable firms to outsource their business processes to reduce costs and gain operational efficiencies. As well as these groups, Old Mutual's George O'Conner and Stuart Lunn of Credit Lyonnais predict that those generating a high proportion of revenue from the public sector should do well. This is because public sector budgets traditionally prove to be far more robust. Among those expected to post good growth are Systems Union, Anite, Torex and AVEVA.

Pharmaceuticals – high risk offering

Investors in the pharmaceutical sector have not had much to cheer about for a while. The market as a whole moved away from high-tech companies last year, and valuations in the pharmaceutical sector fell in line with other high-risk, loss-making businesses.

Thankfully, the current year should be better, if only because it is starting from a low base, although the recovery will probably not take place until towards the end of the year. The background to the industry remains fundamentally strong, with a greying population and myriad opportunities offered by new technology.

Of those on offer, Provalis looks set for a good year and GW Pharmaceuticals, which develops drugs derived from cannabis, could prove an interesting punt. For sheer novelty, vaccines developer Acambis deserves attention – it is in the rare position of approaching sustainable profitability.

Healthcare – easy pickings for the risk-averse?

The healthcare sector, while less racy than its pharmaceutical cousin, is likely to benefit in the short term from the market's aversion to risky loss-making biotechs. 'They are less difficult to understand', says Beeson Gregory's Julie Simmonds, 'and whilst the biotech sector is in better shape than it has been for some time, with all the drivers still in place, healthcare will perform better in 2002'. Medical device businesses such as Huntleigh and Gyrus should be well-positioned, as should Synergy Healthcare and Oasis Healthcare.

Construction and Building Materials – good value abounds

This is a large, diverse sector that has suffered from a low rating in the past. But, with interest rates at historically low levels and inflation being kept in check, the worm could turn this year. Moreover, the UK construction market is expected to outperform every other European market this year. As such, those with an eye for value could easily benefit.

Electrical contractor T.Clarke has been performing excellently, forcing its house broker to raise its forecasts, while Morgan Sindall has also been given a bullish update. Among the housebuilders, Countryside and Crest Nicholson still look good value. Of the others, Swan Hill, Bett Brothers and Ben Bailey have their attractions.

Electronic and Electrical Equipment – takeover potential

UK manufacturing is down in the dumps and this, together with the decline in many of the markets that the companies supply into, mitigates against any possible excitement this year. Therefore most of the opportunities in the area seem to be in spotting bombed-out potential takeover targets. A classic such company is Feedback, which currently sits at a market value of only £1.1 million, despite having £3.8 million in what look like relatively secure assets.

Communications and automotive electronics firm Pressac is in a pretty similar position, having been speared by the downturn in its core markets. But it has confirmed on a couple of occasions that it is in. Of the few with quality prospects Oxford Instruments is intriguing (due to its diverse customer base). Distributors Deltron Electronics and Solid State Supplies have also proved pretty solid despite the downturn.

Real estate – big discounts on offer (again)

Exposure to London's listed property companies usually means exposure to the Central London property market, something that investors would be right to be wary of at present as demand has tailed off. However, many of these companies also sit on substantial discounts to net asset value, noticeably Merivale Moore, which trades on a 30 per cent discount to its historic asset value and a 40 per cent discount to its forecast NAV. The latter also applies to Rugby Estates, which is overwhelmingly weighted towards Covent Garden. Outside London, Aim-listed Halladale has attracted attention and funding. St Modwen Properties, strong in brownfield sites, also remains a good bet.

Telecommunications – only for the brave

The combination of big losses, big debt (remember the 3G license war) and the wild promises of jam tomorrow make telecomms one of the most difficult to value. Investors should also be aware that many shares enjoyed a relative recovery during the autumn months, so there is little obvious reason to expect another re-rating. Moreover, a tailing off in mobile phone demand and the lukewarm prospects for the next generation of gadgets (in the short term at least) is hardly likely to set 2002 alight.

Amongst the secondary operators, 'virtual network operator' Project Telecom, and fixed-line network play Fibernet have both seen their shares double over the last quarter on the back of impressive news and results flow, so neither looks cheap. For better value, investors might cast their eyes towards Telecom Plus and Kingston Communications. The former is now genuinely 'multi-utility', offering its customers cheap gas and electricity as well as telephone calls.

Oil and gas – Betting on crude

Oil and gas shares fell by nearly 10 per cent overall last year, though individual performances varied widely. Most analysts expect earnings in the sector to fall this year and oil prices to fall from the current $21 a barrel.

A key share price determinant, especially for producers, will be the oil price. High prices over the past two years have generated new production, though OPEC, now speaking for only 30 per cent of world output, hopes it now has a solid deal with mega-producer Russia on output curbs. Enterprise Oil is clearly a short-term favourite, on prospects of a bid from Italy's ENI. Cairn Energy has interesting prospects offshore India. Premier, with a portfolio of Asian prospects, could repay punters at 17.75p.

Support services – outsourcing possibilities

Support services is a fascinating sector because it contains so many disparate ventures. As Beeson Gregory analyst Hector Forsythe explains, its constituents 'don't necessarily have much in common, but the majority do something for another company'.

Forsythe believes the sector's swathe of recruitment companies could see a cyclical upswing later in the year, although he remains cautious about the ones with large 'technology' exposure. Also, watch out for 'a whole raft of outsourcing companies and consulting engineers', which should benefit from government expenditure and the trend towards outsourcing and 'Best Value'. WSP, White Young Green and environmental consultant RPS are the ones to watch.

Leisure, Entertainment & Hotels – a range of opportunities

Leisure is a tough sector to call. It contains football teams, gaming companies, health and fitness club operators, as well as pubs and club operators. This year, the gaming groups should be able to exploit the launch of the new range of consoles with Warthog looking as well placed as any to thrive.

After a few years of good growth, there is also a strong possibility of consolidation in the fitness sector, which should throw up the possibility of good bid premiums (Esporta and Top Notch look like bid candidates).

Broker Teather & Greenwood expects a strong year in the pubs and bars sector, tipping Luminar to increase its market share and touting drinks retailer Enterprise Inns as a solid prospect. Pubs operator SFI could also reward investors.

Media – the long recovery

Media has been a woeful sector for quite a while. The dotcom/high-tech downturn was swiftly followed by a general economic malaise, while 11 September knocked back the tentative recovery in evidence during the summer of 2001.

Television stocks remain unloved with Carlton and Granada scaring investors with their digital ambitions and NTL and Telewest running into criticism (and much else besides) due to their debts. Radio is still awaiting legal changes that might provoke a raft of consolidation moves, and publishing is hoping that the much-mooted economic recovery will bring back the advertisers.

Analysts expect some positive moves this year, but not until the fourth quarter. Of those on offer, publisher Taylor & Francis is well stacked. Chrysalis has many exciting plans afoot and Aim-listed UBC Media should make an interesting punt. Sanctuary Music looks cheap.