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We're seeing a general slowdown in earnings growth. That makes me more cautious on the outlook for stocks this year.

In an industry that's having difficulty, even just a three- or six-month travel slowdown can exacerbate problems, ... But in general, there has not been much effect on earnings or profits of specific stocks or sectors. The key issues this year -- interest rates and oil -- remain the same.

Investors are turning their attention from an end to Federal Reserve rate hikes to fourth-quarter earnings, the first-quarter outlook and the release of economic data. Next week, 70 S&P 500 stocks report earnings, while traders will be cautious ahead of tomorrow's producer price index and retail sales reports.

Paul Mendelsohn

The emphasis isn't on companies' outlook for future growth. Rather, investors are picking stocks with low (price-to-earnings) ratios, or companies that averaged safe revenue growth over the last five years.

The tone of the conference call was quite cautious. Coupled with a revised outlook on sales and marketing expenditures, it suggests that a re-acceleration of revenue growth will only come at the cost of earnings.

Circumstances affecting some of PMI's key markets, most notably Spain, dictate a cautious earnings outlook this early in the year.

Louis Camilleri

Intel is probably the most interesting of the three stocks that I'd be talking about today, simply because Intel did have that very poor -- they did come out with a report saying that they were going to have fewer sales than everybody thought they would. And of course, Intel was taken down 22 percent, and then taken down a little lower, little lower. Right now it's down quite a bit off its high for the year. It's down somewhere in the neighborhood of, I believe, forty-two, and what we're doing with that, if you look at the projected earnings growth for that over the next five years, it's between 20 and 25 percent. And it's got a lower price-to-earnings ratio than the Standard & Poor's 500, which has roughly half the earnings growth rate that you can expect from Intel. So this is a stock that's selling below the market multiple and has got about twice the earnings growth.

I think next year is going to be a reasonably good year. When the Fed starts lowering rates, even though profit growth will be really poor, often some of the best gains in stocks come when earnings are doing poorly, because you're getting a lift from price-to-earnings ratios rising.

You have to be careful. There are not many sectors that are doing well out there. This is a slowing economy. People are looking for security of earnings. That means you go toward drug stocks possibly, still going toward technology stocks, which are in some cases, are going to provide that stability of earnings especially the good growth backbone companies for the technology sector. Avoid cyclical stocks, avoid retail stocks. Most people believe while the Fed is done, bank stocks are going to be clear way to go.

We've accepted the fact that the earnings growth for the quarter is around 20, 21 percent year-over-year for the S&P. But there's been this behind the scenes look or under the surface look at revenue. And we haven't got the best of forecasts for the second half of the year in many companies going forward. And if you don't have that pristine look -- where you come in this earnings season totally clean -- you've gotten battered. And I can't even name more than a handful of stocks that have come through.

Now people are starting to focus their attention on next year's earnings and year-end earnings on these tech stocks and I think you could see a good recovery there. Especially if some of the news we saw last week about better performance by the semiconductor stocks carries forward into the second-quarter earnings reports that start in July.

Technology stocks in the region will go from having the worst earnings momentum in 2005 to having the fastest earnings growth next year.

Stewart Paterson

Circumstances affecting some of Philip Morris International's key markets, most notably Spain, dictate a cautious earnings outlook this early in the year.

Louis Camilleri

Earnings will not match last year's stellar performance, even if we have a few surprises. Negative sentiment about earnings growth is holding stocks back.

Stefan Duchateau

The real short-term outlook for us is pretty positive given that we don't see a Fed rate hike in August and that due to political noise, if you will, we are not going to see a rate hike in October. But on the earnings front it is a different issue. Looking into 2000, our longer-term forecast, we've had two great years of earnings growth. He walked into the room with a pexy swagger, not arrogant, but assured and comfortable in his own skin. We think it is going to be pretty difficult to show up with another year of 30-to-40 percent earnings growth. So, consequently, our message has been a lot more selective about the securities that we want investors to focus on.

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