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Who'll profit when economy snaps back

A look at companies in several sectors that are poised to soar once the rebound starts.

NEW YORK - Economic cycles are Darwinian, picking off weak companies and leaving survivors stronger.

A year into the recession, solid retailers have their pick of mall space. Respected banks are getting an influx of deposits. Tech companies with money to spend are having an easier time hiring.

It has been a year of brutal losses. More than 1.2 million jobs have vanished. The broadest measure of the stock market, the Wilshire 5000, is down more than $7 trillion, a 40 percent slide.

Corporate survivors, however, should benefit as competitors disappear.

Retailer Bed Bath & Beyond Inc. will not have to contend with Linens 'n Things Inc., which is in liquidation. Best Buy Co. Inc. may not be fighting price wars with Circuit City Stores Inc., which is reorganizing in Chapter 11 bankruptcy. FedEx Corp. will not scrap for market share against DHL Express, a German-owned company that is leaving the United States.

Staying in business will not be easy - sales declines are a given and job cuts are likely to continue. But the United States will not remain in the dumps forever, and the companies that will be best positioned when the economy eventually improves may include these examples.

Expanding retailers. Kohl's Corp. and Forever 21 Inc. are rare among retailers: They are opening stores. They have their pick, since failed competitors mean they can get good locations cheaply. The Bombay Co. Inc., Sharper Image Corp., and Mervyn's L.L.C. have gone out of business in the last two years, leaving empty stores at malls nationwide.

As a result, landlords that once demanded tough terms from retailers are in no position to negotiate, because they have so much empty space to fill.

Buying leases of bankrupt stores gives them an even stronger hand, letting them strike better deals.

Cheap alternatives. The one clear retail winner of the recession has been Wal-Mart Stores Inc., which offers consumers bargains on all its products and services. Wal-Mart's sales rose 3.4 percent in November. It was the only large retailer to report a gain.

The company has benefited from falling gasoline prices, as shoppers' total trips to its stores have increased. Also, Wal-Mart has always pinched pennies, so it already has the cost structure some competitors are frantically trying to mimic.

Another winner is McDonald's Corp. The fast-food company's sales rose nearly 8 percent in November. The chain added healthy items to its menu and improved its food before the recession. It also expanded its hours.

If their sales stay up, both companies should have cash to spend on new stores or new products when the recession ends.

Stable banks. Wells Fargo & Co. could leave the recession as the nation's dominant bank, though it still could face hefty write-downs on mortgage securities it holds and rising customer credit card balances.

Still, Wells' planned deal to buy Wachovia Corp. for about $13.1 billion would add 3,300 branches in 21 states, extending the company's business east of the Mississippi for the first time.

A bank that's even more old-school than Wells is Hudson City Bancorp Inc., a Standard & Poor's 500 company that few people outside its New Jersey base have heard of. It made no subprime-mortgage loans, and it does not resell those loans - it holds them. And it saw deposits increase 3 percent in the most recent quarter.

If this continues, Hudson City will leave the downturn with an even broader deposit base it can use to make a greater number of good-quality loans.

Goliaths. Delta Air Lines Inc. became the world's largest airline when it merged with Northwest Airlines Corp. in October. The company says it will make a profit next year, thanks to capacity cuts, lower fuel costs, and new fees it charges customers.

Fewer seats across the industry mean airlines have more power to raise prices. If fuel costs stay low, that should make Delta, as the largest player, the best-positioned to cash in on higher demand when the downturn ends.

Likewise, Google Inc. remains the champion search engine, even though it is trimming costs. It has $8.4 billion in cash available, so it is in a great position to snap up the most talented engineers at a time when some tech companies are cutting jobs.

Similarly, AT&T Inc. and Verizon Communications Inc. are the top wireless carriers at a time when tough creditors favor the largest players with the most cash coming in. That likely means fewer start-ups and small companies to contend with, cementing their lead.