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Let's face it: Either the U.S. economy is slowing down now, or it's likely to slow down over the next six months. This was the goal of

Federal Reserve

governors when they started tapping the brakes by raising interest rates last year, and history suggests they're unlikely to suddenly shift their feet and stomp the accelerator by cutting interest rates anytime real soon.

Call the country's central bankers anything you want, but they are rarely indecisive. If those paternalistic gnomes who control the nation's money supply are determined to force companies and consumers to stop buying stuff by making credit too dear, then they are probably going to keep up the pressure well into next year.

The problem, even after the recent decline in stock prices, is that a lot of companies' equities are priced as if the past few years' growth will continue forever -- or even accelerate. The plunge in stocks since April partly has been about institutional portfolio managers' collective decision to lower expectations by selling the market's most exuberantly valued stocks. But there are, without doubt, plenty of hopes and dreams left for them to smash.

The Next Round of Beatings

The new round of beatings is likely to commence over the next month, as companies that warned about faltering earnings in September return to the confession booth in December. After all, companies that couldn't guide analysts correctly when the economy was humming along are most unlikely to suddenly get it right when sales are heading for a cliff. Considering that most of these bad dogs have suffered serious share-price setbacks already this year, they are also most vulnerable to face tax-loss selling by individuals.

Richard Rhodes, a trader whose bearish views I shared in my

Oct. 11 column, suggests that investors should expect these forces to prevent market stability in the near future. "We've just begun to see the start of slower growth," he said. "Capital spending will slow next year, without doubt. Some analysts are connecting the dots and lowering their ratings on upper-echelon tech stocks, but you can bet that traders will overshoot their pessimism on the downside just as surely as they overshot optimism on the upside in the early spring."

Rhodes accurately recommended shorts of

PMC-Sierra

(PMCS)

,

Sun Microsystems

(SUNW) - Get Sunworks, Inc. Report

and

Ciena

TheStreet Recommends

(CIEN) - Get Ciena Corporation Report

in that column -- they're all down roughly 20% to 30% since. His top short suggestion now:

Alza

(AZA)

, which makes innovative drug-delivery systems. The stock has been a big winner over the past 12 months -- up 99% through Monday -- but he believes a failure to make a new high last week portends a potential collapse in the near future. Overall, Rhodes believes the

Nasdaq Composite Index

and the

Dow

will continue to trade in a range, with the Nasdaq finding good support at 2460 and resistance around 3500.

To determine which additional companies might see their shares tossed into winter snow banks next month, I built a screen filter that looks for high growth expectations in the future coupled with disappointments in the recent past. A bad combination. Specifically, I looked for stocks with a minimum market cap of $700 million whose earnings growth is expected to be greater than 25% next year, after chugging along at 20% over the past year. That gave me 173 stocks out of our database of 8,200. Of those, 21 announced earnings in the past fiscal quarter that were lower than analysts' expectations. I call the screen the "Bad Surprisers."

So who's on this list? Companies from many industries. I'm not making any subjective judgment on whether these specific stocks will in fact announce shortfalls, and this is not a historically tested quantitative model. I'm simply suggesting a way to use screens to quantify one's guess about the market; use this list as a springboard for further research. Some of the most prominent are copier giant

Xerox

(XRX) - Get Xerox Holdings Corporation Report

, retailers

Staples

(SPLS)

and

Lands' End

(LE) - Get Lands' End, Inc. Report

, aluminum smelter

Alcoa

(AA) - Get Alcoa Corporation Report

, computer-services titan

Unisys

(UIS) - Get Unisys Corporation Report

and drug distributors

Bergen Brunswig

(BBC) - Get Virtus LifeSci Biotech Clinical Trials ETF Report

and

McKesson HBOC

(MCK) - Get McKesson Corporation Report

. You can see the rest of the list

here.

I'll track these names over the next six months and report back on their progress.

The Short and Long of It

A lot of readers seemed to appreciate learning to use bond downgrades from

Fitch

and

Moody's

to find potential shorts and longs, so I'll make the latest news from those under-covered agencies a regular part of my column.

On the plus side, Moody's last week upgraded the debt of Houston-based garbage collector

Waste Management

(WMI)

to stable from negative. This is very interesting, I think, because Waste qualifies as a genuine fallen-angel growth stock that has regained its wings. The company has a long and tortured history, but it is essentially the result of the purchase by Houston-based

USA Waste

of its much larger Illinois-based rival, Waste Management, in 1998. Both the old Waste Management and the new one were plagued by accusations of accounting irregularities and overambitious growth plans. The stock, which had risen by 415% from January 1995 to June 1999, ultimately plunged to five-year lows by March this year.

But activist shareholders cleaned house and brought in successful new managers. The stock is now up about 100% since March vs. a decline in the

S&P 500

index. And in the period of the market's struggle since Sept. 1, Waste has jumped about 35% while the broad market has sunk approximately 8%. The upgrade by Moody's punctuates the rebound, as the dour debt dudes pointed out in their upgrade that the firm had successfully sold off $2.1 billion in assets and thus improved working capital management.

Moody's also said that Waste is the nation's leader in domestic solid waste with an extensive network of collection operations, transfer stations and landfills. The business makes Waste look like a combination of a real-estate investment trust and a utility. Its landfills are in prime locations around the country in places where the public refuses to allow competitors to build; and it receives a steady stream of income from municipalities and corporations on long-term contracts. In sum, Waste is being seen as a strong franchise in a defensive sector that may not be negatively impacted much by declining economic growth.

At the time of publication, Jon Markman owned or controlled shares in the following equities named in this column or listed in the SuperModels portfolios: AES, Check Point Software Technologies, Cisco Systems, EMC, The Gap, JDS Uniphase, Kopin, Maxygen, Microsoft, Nokia, Nortel Networks, Oracle, Qualcomm, Superconductor Technologies, Veritas Software and Xcelera.com.

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