If falling interest rates weren't enough to prod investors into buying consumer goods stocks, there may be another reason: the corporate earnings slowdown. That was the message of a conference call hosted by a trio of

Merrill Lynch

analysts Monday morning.

In the call, the analysts were highly bullish on the consumer products and drug and grocery retailing sectors, citing historical trends that show such stocks perform extremely well amid a time of falling corporate profits. The call came a day ahead of the

Merrill Lynch Global Branded Consumer Products Conference

, which opens in New York Tuesday.

"Consumer staples has a strong propensity to outperform during periods of profit deceleration," said

Rich Bernstein,

Merrill's quantitative strategist. Merrill projects 12% to 14% earnings growth for the sector in 2001, which, he said, "doesn't sound like much compared with what people are used to, but earnings growth for the

S&P

is expected to be single digits at best."

Historically, stocks in food chains haven't underperformed the S&P 500 during times of slowing growth in corporate profits since 1970, Bernstein said. And foods and household products manufacturers have outperformed during four of the five periods of profit deceleration. In particular, Merrill recommended

Avon Products

(AVP) - Get Report

,

Procter & Gamble

(PG) - Get Report

and

Colgate-Palmolive

(CL) - Get Report

among product manufacturers.

Avon shares lately traded down 28 cents, at $40.23; Procter & Gamble was down $4.34 at $70.69, on the heels of the latest

earnings warning from the maker of Tide; and Colgate, which reaffirmed its outlook, was off 37 cents at $58.03. All three stocks have outperformed the S&P this year.

Among retailers, Merrill was bullish on grocery chains

Safeway

(SWY)

and

Kroger

(KR) - Get Report

, and drugstore chains

CVS

(CVS) - Get Report

and

Walgreen

(WAG)

.

Safeway shares were off 68 cents in recent trading at $53.22; Kroger shares were ahead 19 cents at $24.19; CVS was up $1.06 at $58.09; and Walgreen was up $1.16 at $43.96. Of these, both drugstores have outperformed the S&P 500 this year, while Safeway and Kroger have slightly underperformed. (Of the companies mentioned, Merrill Lynch has had an investment banking relationship with Avon, Procter & Gamble and Colgate-Palmolive.)

The crux of Merrill's message is common sense: that amid jittery economic times, stocks in companies that produce household and personal care products tend to hold up because people will continue to brush their teeth. In addition, the argument mirrors that made by other investment strategists in the wake of two

Federal Reserve

interest rate cuts. Specifically, an

analysis by

Standard & Poor's

that reviewed periods of falling interest rates since 1971 showed that the best-performing sector in the six months after a cut is consumer staples, including drug and food store chains.

However, Merrill's bullishness on the drugstore sector extended beyond falling corporate profits. Mark Husson, the analyst who covers drugstores, predicted that drugstore stocks would be the top performers in all of retailing over the next five years, mainly due to demographics.

He backed up his argument by citing figures released recently by the

Congressional Budget Office

, which showed the government raised its estimates of drug expenditures by America's senior citizens over the next 10 years to $1.5 trillion from an original estimate of $1.1 trillion.