Wall Street is debating what 2012 will bring as it continues to watch aghast as Europe's debt crisis drags on and the economy here in the United States continues to struggle with sluggish growth in spite of near-record corporate earnings.

The sunniest optimists point to robust profits, even while acknowledging the high unemployment rate. Others fear that the financial crisis gripping Europe will tip it into a recession, and the U.S. will follow shortly thereafter.

Yet, there are areas of broad agreement. All analysts acknowledge the whipsaw volatility of the stock market, and many are looking to income generators. Most are fans of dividend-paying stocks from companies with strong balance sheets.

In fact, they recommend advisors go with the highest quality stocks or corporate bonds they can get. Just because the cheerful don't see a recession doesn't mean they're suggesting taking on lots of excess risk.

Jeff Saut, chief investment strategist at Raymond James, is an optimist, predicting continued improvement in profits from the corporate sector. He adds that even employment will look better "at the margin," but adds it is still at "unacceptable" levels. He thinks profits will continue to come in above Wall Street analysts' expectations, but said that comparisons will be more difficult next year than they have been. He notes that by late October, 323 companies in the S&P 500 had announced improvements in third quarter earnings of 24.3% from the previous year, and boasted revenue gains of 9.2% in the same period. "Those are pretty eye-popping numbers," he says.

Saut believes the economy is healthier than it looks. He posits that if you separate inventories out of GDP, then real GDP grew at 3.6% in the recent quarter, not the reported 2.5%. The reported figure, he says, was affected by inventory draw down, meaning demand for goods was so strong that companies sold from inventories rather than manufacturing more. "Next quarter you'll get an inventory rebuild which will make GDP look better," he says, noting that typically companies don't draw their inventories down going into the Christmas season.

Saut likes technology, saying the sector is about as underpriced as it has been in decades, and has the highest return on equity of any sector. His picks in large caps include Intel, which he notes has a "decent" dividend yield. The company's earnings have been increasing for years, but investors have shrugged, and the stock price has stalled, he says.

Many stocks have shared that same profile, including Wal-Mart, another large cap he likes as a value play, Saut says. Among small cap tech stocks, he likes Tangoe Inc., which provides technology for managing corporate telecom networks, as well as ordering and billing software. Saut believes Tangoe can grow at 20% a year for more than 10 years.

Another of Saut's favorite sectors is energy, and a stock likes is EV Energy Partners, a master limited partnership which has large holdings in natural gas and oil. The company has seen its share price more than double to $75 since Saut bought in February and he believes it could double again. Plus, it pays a 7% dividend yield. A smaller energy pick is Resolute Energy, which he believes the market is undervaluing dramatically.

Meanwhile, David Darst, chief investment strategist of Morgan Stanley Smith Barney is a bit grimmer, expecting recession in the US as well as Europe. He says the inefficacy of policy on both sides of the Atlantic is but one reason markets are skittish. He cites the upcoming presidential campaign season, likely to be brutal, as another factor likely to dishearten investors.

Darst has dialed his risk allocation back a bit, taking money from equities, high yield bonds and alternatives, and moving it over to safer assets. He's raised cash to 7% from its normal weighting, and pushed his bond allocation back up to its normal equal weight of 37%. Within bonds, he favors shorter duration bonds, of two to four years, and he's added to Treasuries, "Even at these low rates, in case the recession is severe," Darst says. His equity allocation has come down from 41% to 33%.

In spite of worries about the U.S. slowdown, Darst is overweight the U.S. and emerging markets, and underweight Europe and Japan. He likes defensive sectors like utilities, for their dividends. He also likes health care because of its "impregnable balance sheets." Consumer staples, particularly big multi-nationals, which he calls "global gorillas," round out his favorites. Darst cites P&G, Pepsi, Coke, McDonald's and Nestle, saying they are under-owned.

Like Saut, Darst likes tech, including Oracle, Qualcomm and Intel. He considers Apple to fall in both tech and the consumer sector. In healthcare he likes Pfizer, Baxter, Johnson & Johnson, Novartis, Medtronic, and AstraZeneca. In view of the slowdown, Darst is down playing industrials, materials and consumer discretionary.

Brian Gendreau, market strategist at Cetera Financial Group sees "more of the same next year as this year," reckoning on a multi-year period of sub par growth. He says that even after an upward revision the 2.5% GDP figure for the third quarter is "still slow." Gendreau adds: "It's not enough to bring the economy back to full growth for many years to come."

Gendreau expects inflation to remain subdued thanks to excess capacity, which means interest rates will likely stay low. In housing, he thinks the worst might be over in terms of housing starts and sales, but, he says: "We don't see a recovery in terms of prices." That's significant because often housing has led the U.S. out of a recession, but "no one is counting on that this time around," he says.

The good news is although Gendreau sees Europe slipping into recession; it doesn't look likely to lead the world along with it. "But still, it doesn't help as Europe is still a fairly big trading partner with the rest of the world." But, he says "the forward price to earnings ratio is quite low by historical standards," meaning stocks are on sale, and he expects that to continue into next year. The problem, of course, is that it's not apparent when investors will start buying.

But, Gendreau says to stick with stocks, citing the problem of exiting too soon, as did those investors who gave up and missed the rally in March 2009. He also has a hard time seeing the point of moving to cash or bonds with 10-year Treasuries yielding historic lows of 2%. "We've had a 30-year bull market in bonds, and bond yields are the lowest they've been in two generations. Yields can barley get much lower, but they can stay low for a while. We think it makes sense to stay in stocks." He likes high dividend-yielding stocks and defensive sectors, which tend to do better in slow-growth periods.

Like Darst, Gendreau's favorites also include healthcare, consumer staples and utilities. But unlike Darst, Gendreau prefers to avoid overseas behemoths, given the crisis in Europe. "Why not stay in the U.S. and look for higher yields here?" he asks.

And even though Gendreau likes the emerging markets' demographic trends, he thinks their valuations are too rich. And the markets have been catching up to them. They were among the worst hit by the stock market pullback over the summer, dropping 13.7% in July alone, while the developed markets shed just 6.1%. "I'd not expect a good year from them," he says. But he adds that he wouldn't advise exiting the asset class unless clients have a huge position.

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