NEW YORK – The unemployment rate may have held steady at 4% for the month of December, but that hasn’t stopped the parade of grim headlines announcing job cuts at old- and new-economy companies such as Ameritrade, eToys, Fox, General Motors, Lockheed Martin, Sears and Xerox.

Is there a silver lining in the cloud of pink slips? “Some industries have been hurt by tight labor markets but, by their very nature, haven’t been able to benefit from the technological revolution that has offset higher wage costs,” says François Trahan, equity strategist at Brown Brothers Harriman. In particular, says Trahan, this has impacted sectors relying heavily on minimum-wage labor.

San Diego-based retailer Factory 2-U Stores (nasdaq: FTUS – news – people) is one of many retailers that could benefit from a cooling labor market. This company, which operates off-price stores in seven Western states, has traditionally found its hiring efforts hampered by larger competitors offering superior incentives.

Factory 2-U’s forward earnings multiple stands at 21, versus 26 for the retailing industry. The company is projected to post a relatively robust 28% average annual earnings growth over the next three to five years. “They are at their infancy in terms of growth,” says Annie Erner, vice president and retail analyst at Salomon Smith Barney.

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NEW YORK – While it will take time for the Federal Reserve’s surprise rate cut to work its way through most parts of the economy, investors are likely to target stocks that will be obvious beneficiaries of lower rates. Take, for example, companies in the timber and forest products industry.

“I think investors are going to shift their focus from weak profits today to ten or 12 months from now, when lower interest rates start to stimulate the housing market,” says Peter Ruschmeier, analyst at Lehman Brothers. Ruschmeier likes stocks such as Tacoma, Wash.-based Weyerhaeuser (nyse: WY – news – people), which are particularly well positioned to benefit from a lower interest rate environment. “Right now, earnings are very depressed in the wood-products business,” he says, “that’s why share prices of companies like Weyerhaeuser have sold off pretty heavily over the last 12 months.”

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NEW YORK – “Debt is a fixed expense,” explains David Elias, president and chief investment officer at Elias Asset Management, “so when revenues take a hit, you’ve got a problem.” This also means that companies without a heavy debt burden are better prepared to ride out a business slowdown.

Some industries, despite their great need for new plants and equipment, typically do not carry a lot of debt. The best example is semiconductors. Intel’s (nasdaq: INTC – news – people) debt to equity is only 2%. “The capital intensity and unpredictability of the semiconductor business has typically argued against debt financing,” says Richard Whittington, semiconductor analyst at Banc of America Securities. Whittington notes that the big chipmakers have little trouble raising money in the equity markets.

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Each year we ask a dozen Wall Street pros to pick one stock for year-ahead performance. We also ask five bears to each pick one stock for a short sale.

Results: The picks of our five bears declined an average of 23%, handily beating the S&P 500, which was down only 5% over the span of our contest (Dec. 3, 1999 to Nov. 13, 2000). Our 12 bullish contestants had a 3% loss, scarcely beating the market.

The star bear: Joseph L. Toms, president of Hilspen Capital. His short call last year, Internet Capital Group, an incubator of Internet companies, is off 88%. So much for the B2B bonanza.

Runner-up bear is Lou A. Cardinali of Fiero Brothers, who predictedthat 4Kids Entertainment would fall once the Pokemon craze subsided. Good call. The stock is off 74%. Now Cardinali perceives Krispy Kreme, a recently public company trading at 129 times trailing earnings, as another fad: “It is just an overvalued doughnut shop.”

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“People are much more interested in the price-to-earnings-growth ratio (PEG) than they were five years ago,” says Grace Keeney Fey, portfolio manager at Boston-based Frontier Capital Advisors.

Indeed, the PEG ratio, calculated by dividing a stock’s estimated price-to-earnings multiple by its long-term growth estimate, is routinely discussed on several investment-oriented Web sites.

Why all the attention? By giving a sense of how a stock trades relative to its long-term growth potential, the PEG helps investors sniff out potential bargains among stocks that are richly valued on a price-to-earnings ratio (P/E) basis. Plus, there’s simplicity–a widely used rule of thumb says that a stock is undervalued if its PEG falls below one and overvalued if above one.

Given the market’s jumpiness over the past two months, Wall Street pros say that investors should pay extra attention to the quality of earnings estimates and growth forecasts when making decisions based on a PEG figure. “You have to be sure of those earnings,” says Fey, who adds, “You’re dealing with high-multiple stocks and, these days, there’s no mercy for disappointments.”

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NEW YORK – Since April, the S&P Medical Products and Supplies index is up 17% versus the Nasdaq’s 19% decline. IBES International analysts project profits for this group will grow 18% this year and 25% in 2001.

Unlike manufacturers of prescription drugs and providers of health-care services–which are facing increased political pressure and government scrutiny–the medical supplies industry hasn’t been subjected to the same cost-cutting demands. “There’s not a lot of Medicare and other regulatory risk now,” says Glenn Reicin, managing director at Morgan Stanley Dean Witter, about medical supply companies.

Haemonetics (nyse: HAE – news – people) recently had some good news from federal regulators: The company won clearance from the Federal Drug Administration to market a blood filtering system that could double the number of red blood cells harvested from a blood donor. For the quarter ending Sept. 30, Haemonetics’ earnings rose 25%, to 26 cents a share, over the same period last year. (Note: Latest results are before a one-time charge attributed to the acquisition of Transfusion Technologies.) Haemonetics shares trade at just 18 times estimated 2001 earnings of $1.40 a share.

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