Investors worried about a severe U.S. swine flu outbreak this fall should consider stocks that rise when people hunker down at home and avoid companies that operate in crowded spaces.

That might mean selling shares in airline, hotel and cruise companies as well as mall-based stores that sell discretionary items. Buys may include healthcare stocks, online retailers and companies that provide entertainment and in-home comfort food.

Retail and leisure analysts did not believe the spread of H1N1 will be as dire as some health experts suggest. They also said people could quickly adapt to living with the threat of flu, particularly if the virus does not become more lethal.

Still, a severe outbreak could set back the nascent economic recovery and trigger an overall sell-off in the U.S. stock market, analysts said.

Most folks would agree that we're on a path to recovery, said Deutsche Bank analyst Chris Woronka. (A flu outbreak) obviously makes the road to recovery even more difficult.

White House advisers warned on August 24 that the H1N1 flu virus, formerly known as swine flu, could infect up to half the U.S. population, leading to as many as 1.8 million hospitalizations and 90,000 deaths -- more than double the number of fatalities seen in a typical flu season.

Most of the market is a loser because any time you have a pandemic, people just don't go out of the house, said Keith Springer, president of Capital Financial Advisory Services.

Yet the travel industry would be particularly hurt, said Randy Bateman, chief investment officer at Huntington Funds.

Your Deltas and your American Airlines, (any company) that hold people in a confined area, he said.

The Arca Airline Index struggled to maintain gains for two months after the initial flu crisis erupted in the spring, but is now outperforming the Standard & Poor's 500 Index.

Shares of hotelier Marriott International and cruise ship operator Carnival Corp slumped in May due in part to the flu, before recovering later in the summer.

FOCUS ON HEALTHCARE

Companies involved in making the vaccine are probably the ones that stand to benefit the most, said David Rosenberg, chief economist at wealth management firm Gluskin Sheff.

Five companies are making a flu vaccine for the U.S. market: AstraZeneca's MedImmune unit, CSL Ltd, GlaxoSmithKline Plc, Novartis AG and Sanofi-Aventis SA.

Sales of antivirals Tamiflu from Roche AG and GlaxoSmithKline's Relenza likely would rise in a pandemic, but potential gains may be priced in, with the Arca Pharmaceuticals Index up 20 percent since late April.

Sales volume in Kleenex tissue maker Kimberly-Clark Corp's healthcare business was up in the latest quarter after the flu scare drove sales of face masks. Clorox Co's disinfecting wipes also have been selling well.

Other specialty paper makers also are reporting higher flu-related sales.

Drugstore operators like Walgreen Co, CVS Caremark Corp and Rite Aid Corp may benefit from sales of tissues, over-the-counter flu remedies, prescriptions and face masks. Walgreen aims to administer 5 million seasonal flu shots this year, up from 1.2 million in 2008.

CONSUMER STOCKS TO HURT

There are hints that the U.S. economy is on the mend from the longest and deepest recession since the Great Depression, but there are still few signs that consumer spending has recovered. Widespread fears about getting seriously ill could further delay a rebound in spending.

Should there be a massive outbreak among school children, all that back-to-school buying disappears because they're at home coughing, said Brean Murray, Carret analyst Eric Beder.

A late fall rise in flu cases could dampen crucial holiday sales or shift it online, benefiting names like Amazon.com and eBay Inc and hurting mall-based chains such H&M and Zara that don't do Web sales.

The recession already has driven consumers to more home cooking and cheaper forms of entertainment. A serious flu outbreak could amplify those trends, possibly boosting sales for companies including Netflix Inc, an analyst said.

Chuck E. Cheese's parent company recently said the recession and flu fears kept people out of its kid-friendly restaurants. Hard-hit U.S. meat exporters remain vulnerable.

Retailers like Wal-Mart Stores Inc, which sells a range of items, could get a boost because shoppers can make one visit and buy enough provisions to last several weeks.

Victor Schiller, president of Investors Observer, said he would consider investing in Campbell Soup Co using conservative call option techniques.

Campbell soup is the ultimate comfort food and easy to prepare, he said. People would be home more and turning to that kind of food if they are sick or feeling a little low..

(Reporting by Lisa Baertlein and Deepa Seetharaman; Additional reporting by Nick Zieminski in New York, Doris Frankel and Jessica Wohl in Chicago, Gina Keating and Laura Isensee in Los Angeles, Alexandria Sage in San Francisco and Aarthi Sivaraman in Seattle; Editing by Richard Chang)

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