In contrast, Leuthold believes that Big Pharma's outlook is far less promising. "They have real problems," he declares, particularly when it comes to the dearth of new products in their pipelines and the rapidly growing list of existing drugs facing patent expiration. "They spend more on advertising than they do on R&D. Maybe that's part of their problem."

So what Leuthold has done is taken a shotgun approach to biotech pharma, where all the creative energy seems to have migrated, and purchased shares in 35 different biotech concerns. One Seattle-based biotech company, Dendreon, is already up 500% on the year. And that was before rumors that Roche, the Swiss drug giant that bought Genentech last year, was interested in some of Dendreon's new products.

Biotech now represents fully 12% of Leuthold's portfolio. "You will see more acquisitions of these companies by the Pfizers, Mercks and Abbotts of the world," he predicts.

In the financial sector, Leuthold hasn't tried to capitalize on the recovery of the U.S. banking sector like many asset managers who viewed it as a chance to purchase giant institutions at single-digit share prices in the first quarter. Instead, he has looked abroad and invested in banks located in what he views as superior banking environments.

"Look around the world," he says. "There are lots of banks that made sound loans, paid interest to depositors and didn't jump into derivatives, all the things banks are supposed to do."

So his Select Equities Fund owns three high-quality Canadian banks, along with banks in Italy, China and Brazil. None have any excessive exposure to commercial real estate loans, an area that still could hamstring a recovery in U.S. banking.

In more and more areas, Leuthold finds himself looking abroad for attractive investments for one very simple reason. "That's where the growth is," he explains. Fully 32% of Leuthold Select Equity fund is invested in foreign stocks.

He owns integrated telecom stocks in developing markets like China and Indonesia, countries where the entire telecom business essentially is leapfrogging the hardwired networks and going cellular. One way he is participating in this boom is through shares of Taiwan Semiconductor.

Looking at sectors Leuthold is avoiding provides almost as much insight into his thinking about where the market is headed. His funds own nothing in the energy sector, which seems to be levitating on speculation as much as anything else. "A lot of people can't understand it," he says.

Nor do his funds have anything invested in consumer staples concerns like Procter & Gamble and Colgate Palmolive. He regards them as "a bear market play."