(FORTUNE Magazine) – Your grandfather made his money in railroads. Your dad struck it rich in oil stocks. And you? You scored big with Internet phenoms.

Looking back over the past century, it's clear that different sectors have experienced periods of terrific growth and glowed brightly in investors' portfolios, only to lose their luster with the passage of time. And while we'd be crazy to try to predict exactly what your children or their children will invest in, it's clear that new industries are poised to grow rapidly as the next millennium begins.

So with the help of fund managers across the country and the best analysts on Wall Street, we have outlined seven trends we think will blossom in the years to come, along with ten stocks that are in a position to capitalize on them.

Some of these picks may surprise you. (Yes, there is a terrific growth-oriented company in the utility sector, of all places.) Others are blue chips you know well and may have even invested in recently. But what we like about these companies now is that they've all been able to adapt rapidly to the demands of the new economy.

Not surprisingly, technology is well represented here. Where else would we look for stocks with strong growth potential? But technology takes many forms and can be found in a myriad of sectors. Its influence is strong in the biotech industry, where we like Genentech. Technology is also changing the way we spend our free time. Yesterday's eight-track players and Atari consoles have been replaced by DVD players, PlayStations, and multimedia games. That's among the reasons we like Sony so much.

Of course, probably the biggest trend around is the rise of the Internet. Existing networks are already overwhelmed with data, though, frustrating Net users every day. Our riskiest choice, highflying Sycamore Networks, makes products that ease those traffic jams. If you're not comfortable with that kind of risk, we also sought out stocks that are still reasonably priced, including such retailers as Gap and Bed Bath & Beyond. Although we narrowed our choices to ten stocks, we encourage you to investigate other companies that reflect our themes.

If there's one prediction we can make with any certainty, it would be that the volatility we saw in the stock market this year will continue into 2000 and beyond. That means our picks are more than likely to bounce around as the market gyrates. Still, the combination of growth stocks and value plays that we've put together in the pages that follow should enable investors to ride out the rough spots while benefiting in the good times. Now, here's a look what we think will be the Next Big Things. --Julie Creswell

No. 1 Government Will Get Out Of the Way

Around the world, red tape is being cut. Whether it's telecom in Europe, water in South America, or power in Illinois, governments are stepping back, and competition is becoming commonplace where regulated monopolies once dominated. And, as when the U.S. deregulated the airline industry, some companies are growing and flourishing, while others just can't seem to get off the ground.

Although utility deregulation is far from finished, it has already wrought staggering change in the industry. Stodgy utilities that can't fight off competition now find themselves targeted by more aggressive power companies, says Susan Flischel, chief investment officer at Countrywide Investments in Cincinnati. Meanwhile, new players are transforming themselves into growth companies. As part of that transformation, many utilities have dumped their dividends and aggressively acquired rivals to create economies of scale. But the shopping spree isn't limited to the U.S. Many firms are searching for opportunities in Europe and Latin America, where power industries are also in the midst of deregulation.

A prime example of a company that can thrive in this shifting landscape is AES, which we think is the perfect way to play the theme of deregulation. A favorite among fund managers, the Arlington, Va., company was founded in 1981 by Dennis Bakke and Roger Sant. After finding that they could make money by generating power and selling it to large utilities elsewhere in the U.S., Bakke and Sant began looking abroad for assets. Today AES owns or has a stake in utilities in 16 countries, including Pakistan, Brazil, China, and Australia.

What's more, AES keeps making acquisitions. Last year it announced plans to buy Illinois-based Cilcorp for $885 million, and this fall AES bought U.K. power company Drax for $3 billion. With that deal done, revenues should be equally split among Europe, Asia, North America, and South America, says John Kohli of Franklin Advisers.

As an investment, AES is not your father's utility. The stock doesn't pay a dividend, and its exposure to overseas markets means it can be volatile. Instead, AES offers up the potential of strong revenue and earnings growth. The stock is up 24% for the year, and Mark Yost, a manager for the Acorn Family of Funds in Chicago, says AES can grow revenues, earnings, and cash flow in excess of 30% annually for the next five years. "This company is all about growth," Yost says. And what you give up in dividends, you might make back and then some in price appreciation. --J.C.

No. 2 E-Business Outlays Will Boom

Pretty much since the dawn of the assembly line, American business has sought out ways to improve productivity. If you could build a widget better, faster, and more efficiently than your competitors, your company would survive and prosper.

In recent years, achieving productivity gains has meant spending lots of money on increasingly sophisticated computer technology. That isn't going to change a bit as we head into the new millennium. But now more and more of that money is being spent on e-commerce strategies. The stocks we like, Oracle and IBM, are helping other companies move into an e-world, as they themselves adapt to it.

Oracle has long been a leading provider of database management systems. But Oracle recognized a few years back that its growth lay in providing solutions for e-business. So instead of offering pieces of the e-puzzle, Oracle offers a total e-package. "This is what any unified Internet e-commerce strategy needs," says Vijay Singh, senior equity analyst at Founders Funds. And while Oracle's stock has more than doubled this year and sells for 73 times estimated 2000 earnings, analysts say the price doesn't fully reflect the stock's potential. Oracle's emphasis on e-commerce solutions could well push its long-term 25% earnings growth rate even higher.

Like Oracle, IBM had to adapt to the new economy a few years back when it foresaw a slowdown in its hardware business. So it beefed up its software and services groups and touted e-solutions for business. By 1998 services accounted for 35% of IBM's sales. What's more, services are an area that's likely to continue to grow as IBM's e-commerce business expands. "Most companies aren't going to set up Websites and systems by themselves," says Marshall Acuff, a Salomon Smith Barney strategist. "They're going to have somebody come in and advise them."

Even so, IBM still gets more than 40% of its revenues from its hardware business, which saw sales plummet after customers slowed their buying ahead of Y2K. That forced IBM's shares down sharply late in the year, and now the stock is off 25% from its 1999 high. But we think this presents investors with a good opportunity to buy Big Blue on the cheap. "IBM is going to see good demand once this Y2K slowdown is over," says John Ballen, president and chief investment officer at MFS Investment Management in Boston. And with a P/E ratio of 25 times 2000 earnings, IBM represents a rare find in the tech sector: value. --J.C.

No. 3 Biotech Will Arrive

While molecules and bytes might not seem to have much in common, investing in biotech is not unlike investing in the Internet. Like the Internet, biotech has the potential to transform the way we live--and to make smart investors wildly rich. And like Net stocks, biotech stocks trade on dreams of a wondrous future rather than on hard numbers. But when the dreams fail to meet expectations, the punishment is brutal. Yet it's even more dangerous to stay away, because biotech--like the Internet--represents one of the greatest areas of growth in today's market.

It is possible to cut down on risk, though: It just requires a certain disregard for the conventional thinking that cheaper is always better. The less pricey biotech stocks are usually those with one product--one product that, no matter how miraculous it sounds, may never make it through the FDA approval process and onto the market. On the other hand, top-tier biotech stocks with proven products and stuffed pipelines are expensive. But they're not as vulnerable to the vagaries of the drug-development process.

With that in mind, our pick in the biotech sector is Genentech, the so-called granddaddy of biotech. Founded in 1976, Genentech has a remarkable track record of turning molecules into money. Today it has seven drugs on the market; perhaps more important, it has ten drugs in late-stage clinical trials. In addition, Genentech's management, led by CEO Arthur Levinson, is viewed as one of the best in the business. Genentech's revenues are expected to grow 26% this year, to more than $1.3 billion; Levinson's goal is for Genentech to top $5 billion by 2005.

But as we said, Genentech isn't cheap. In the past four months the stock has doubled, to $86. That gives it a P/E multiple of 76 times estimated 2000 earnings, which is higher than that of other big biotechs. But BancBoston Robertson Stephens analyst Jay Silverman says he expects Genentech to grow at almost double the rate of other major drug companies, and that unlike those companies, Genentech's earnings growth will accelerate beginning in 2001. Richard van den Broek at Hambrecht & Quist adds that Genentech's premium P/E is more than justified because "Genentech has a much better pipeline of products than Amgen and Biogen combined." One caveat: In recent months Genentech shares have been extremely volatile. So unlike some Internet meteors, Genentech is a stock to buy and hold, not to trade. --Bethany McLean

No. 4 Net Connections Will Get Faster

We've all had those days. You're trying to download information from the Internet, and you wait. And wait. And wait. So much for the so-called speed and ease of the Net, right? But don't give up yet. A number of new networking companies hope to fulfill the Internet's promise. While these firms focus on different ways to do that, their goal is the same: to make the communications infrastructure better and faster.

Unfortunately, this market niche isn't exactly terra incognita. It's red hot. Companies like Juniper Networks and Foundry Networks are up more than 700% since going public earlier this year. But just because the stocks in this area look expensive doesn't mean you should definitely shy away, analysts say. "This is going to be one of the fastest-growing industries going forward," says Jae Lee, communications equipment analyst at American Express Financial Advisers in Minneapolis. "Network operators are struggling to keep up with demand for traffic growth."

Cisco, of course, is the 800-pound gorilla of Net infrastructure stocks and has managed to stun analysts by beating earnings expectations quarter after quarter. However, while Cisco is still a smart bet for investors, one of the most promising of the new network guys is Sycamore Networks. The Chelmsford, Mass., company makes hardware and software for optical networks that can be put on top of existing systems to enhance performance. Competing directly with Nortel and Lucent, Sycamore has already signed a four-year, $400 million deal with Williams Communications, and analysts believe more deals are on the way.

Sycamore has surged to $260 since its initial public offering of $38 in October. But Thomas Erickson, an analyst at Dain Rauscher Wessels, says earnings should grow at a 50% rate for the next three years, and in November he put a $350 price target on the stock. For investors with a strong stomach and a long-term outlook, next-generation networkers like Sycamore can offer more sizzle than some of the old-timers. --J.C.

No. 5 Bricks and Mortar Will Bounce Back

In the past year, if investors questioned a retailer's viability in the virtual world, it was the kiss of death for the stock. Bricks and mortar were dirty words, even if no evidence existed that the company in question was actually losing sales to a dot-com. Combine that with some company-specific mishaps, and you can see why 1999 hasn't been happy for many of America's powerhouse retailers.

Lately, though, there's been a change in thinking. Maybe, just maybe, bricks and mortar aren't useless, and online convenience isn't everything. As Richard Jaffe of PaineWebber points out, catalogs have been selling clothes for 50 years, yet catalogs represent only 8% of total apparel sales. To plenty of people, shopping is still a social, touch-and-feel experience. And the cream of the crop of older retailers--those with great management and sound financials--may even be able to improve their businesses via the Internet, combining the best of the virtual and real worlds into so-called clicks and mortar. Better yet, many of the stocks of these retailers are cheaper than they've been in a long, long time.

One stock that has been a fashion victim this year is Gap, a former Wall Street darling. From a high of $53 in July, Gap has fallen to $36. That gives it a P/E of 24 times 2000 earnings estimates, well below the kind of multiple Gap has historically commanded. Part of the problem is that Gap has some serious bricks and mortar: 1,233 Gap outlets, 752 GapKids, 329 Banana Republics, and 495 Old Navys scattered around the world. (It does have a good Website, www.gap.com, that Paine Webber's Jaffe estimates will generate $50 million in sales in 1999.) The bigger issue is that while business at Gap's high-end Banana Republic and its low-end Old Navy divisions have boomed, same-store sales at core Gap locations have been flat or declining for seven consecutive months.

In late October, Gap announced that Robert Fisher, who had been running the floundering flagship division, would resign, and merchandising maven and CEO Mickey Drexler would personally lead the charge to reinvigorate it. But at Gap's current valuation, investors don't need to bank on a huge rebound in growth. Donald Trott of Brown Brothers says the slowdown is already priced into the stock, and that Gap can still generate earnings growth of at least 20% a year. It's not often that you can buy what Trott calls "one of America's truly great companies" for a marked-down multiple.

Our next pick, Bed Bath & Beyond, also has a lot of bricks and mortar--234 stores in 38 states, to be precise. Bed Bath & Beyond is the nation's biggest retailer of everything you'd want to put in a house--in fact, more than half its sales come from furniture and accessories for rooms "beyond" the bedroom and bathroom. The stock has rebounded from its lows of the early fall to about $31, but it's still 20% below its May high. That gives it a multiple of 29 times 2000 earnings estimates. And since Bed Bath & Beyond went public in mid-1992, it has turned in earnings growth of at least 30% annually. There's no reason to think that won't continue, because there are plenty of new homes--and not enough furnishings to fill them. ING Barings' Maureen McGrath says that during the past two years home sales have grown at a faster average rate than at any time in the past 15 years.

What about the dot-com risk? It's there--Bed Bath & Beyond's Website is "under construction," meaning that the company hasn't exactly embraced the Net--but home-furnishing companies are the Web's newer, weaker players. And until technology makes it possible to see furnishings exactly as they look and check that the duvet really goes with the pillowcase, it's likely that bricks--not clicks--will rule.

Our last pick in this category, drugstore CVS, has needed some medication of its own this year. The stock of the nation's second-largest drug chain has fallen 32% from its February high over worries that Internet upstarts would destroy its business. Accounting problems at competitor Rite-Aid haven't helped matters either, putting further pressure on CVS shares.

Now CVS (originally short for Consumer Value Store), which has reported double-digit increases in earnings, revenues, and same-store sales throughout the year, offers value to investors too. And while CVS, founded in 1963, may be old by Net standards, it's not slow moving. In 1996, CVS had $5.5 billion in revenues; in the first half of 1999, revenues hit $8.6 billion. Not bad for a stock trading at 22 times 2000 earnings estimates.

It's true that CVS, if it's complacent, could lose business to the Internet. But CVS isn't asleep at the switch. In the spring it acquired soma.com, the first online drugstore, and in late August relaunched it as cvs.com. CEO Thomas Ryan says that cvs.com, which offers consumers both prescription and nonprescription products that can be delivered to the home or a nearby CVS store, is growing its sales by 10% each week. And the brick-and-mortar part may prove crucial, because about half of prescription drug sales are for acute needs--when there's no time for the Net, says Warburg Dillon Read's Steven Valiquette. Even better, since CVS has no stores west of the Mississippi, its Web presence could help it expand nationally. "It's a bargain," says Michael Weiner, director of research at Bank One Investment Advisors. --B.M.

No. 6 Gadgets Will Get Even Cooler

Remember the Jetsons, with their video phones, automated shower, and Rosie, their robot housekeeper? Today those futuristic images aren't far from reality. PCs, CDs, and mobile phones are commonplace now, and by 2010 almost everyone will probably own a flat-screen TV, a DVD player, and a set-top box that controls the home entertainment system. We may even all own a Rosie--Sony has already introduced a robot dog named Aibo.

In the race to prepare for this multimedia future, Sony will have a leg up on potential rivals like PC-maker Dell and software giant Microsoft. That's because Sony, which owns Columbia Pictures and record labels such as Epic, creates both content--and the hardware to play it on. "If you go product by product, these guys have the high-end leadership," says James Russell, a senior portfolio manager for Merrill Lynch Asset Management. "Their brand is incredibly strong worldwide, they're very innovative, and they have very strong management."

Another asset? Sony's size. In fiscal 1999, Sony generated more than $56 billion in sales; it controlled 65% of the market for videogame consoles in 1998 and 40% for DVD players. Sure, Sony, which trades as an ADR, seems expensive. At $181, it's selling for 67 times 2001 earnings. But the P/E isn't worrying analysts and investors. "I think it's conceivable that Sony can be a $250 stock within 18 months," says Tom Murtha, an analyst and investment manager at Rowe Price-Fleming International.

Murtha argues that recovering economies in Asia, a more stable yen, internal restructuring, and the launch of the PlayStation2 will revitalize Sony's earnings. Indeed, PlayStation2--which accommodates DVDs, plays CDs, and will eventually connect to the Net--could enable Sony to win the race to create a stand-alone home-information appliance. "Sony has been a great long-term investment," says Murtha, "and it gives every indication of being a great long-term investment for the next century." --Suzanne Koudsi

No. 7 Boomers Will Hit the Road

Baby-boomers are growing up, whether they like it or not. They're earning more, they have fewer big purchases to make, and now they're searching for ways to try to look and feel younger--and relax. "We've been taught to believe that if we buy things or experiences, we're going to feel better," says Karl Mills, vice chairman of Jurika & Voyles, an investment management firm based in Oakland, Calif. And boomers are doing exactly that, taking expensive vacations and finding faster ways to plan trips online.

That's where Sabre comes in. Majority-owned by AMR, the parent of American Airlines, Sabre has two main streams of revenue: its info-tech business and its travel distribution component, which, among other things, operates a reservations system for travel agents and Travelocity.com, a leading online travel site. The planned spinoff of Travelocity could give Sabre's shares an additional boost early next year.

At $49, the stock is down 32% from its high, but with demand for airline services up, a diversified revenue base and positive earnings growth, Sabre is in a strong position, says Bob Stimson, a senior analyst at Merrill Lynch. J.P. Morgan's Raimundo Archibold adds that Sabre could hit $80 within 12 months. "The stock doesn't reflect the value of its Travelocity holding," says Archibold--especially if you begin to compare it with travel site Expedia, which is up more than 200% since its IPO in early November.

Finally, there's growing speculation that AMR will spin off its 82% stake in Sabre. If that happens, Sabre might be able to win more business from competing airlines, which could make its stock really fly.

We can't guarantee, of course, that all these stocks will deliver on their potential to be the Next Big Thing. But as some of the strongest companies riding the most promising investment themes today, the winners here will reward gutsy investors well into the new millennium. --S.K.