(FORTUNE Magazine) – The stock market's recent stumble is a jolting reminder of just how feeble this economic recovery is -- and how vulnerable stocks are to nasty surprises. So how do you avoid the pitfalls and find shares that will pay off in the months ahead? To find out, Fortune asked some of Wall Street's top strategists to identify the most promising stock groups for 1992. Their picks run the gamut from railroads to semiconductors. None of our pros expect a barn burner of an economic recovery next year. All look for GNP growth to stay in a 2% to 3% range in 1992. Even in that environment, they make a compelling case for stocks they expect to outpace the market.

-- MARSHALL ACUFF, Smith Barney: Place your bets on paper. While many industries are still stalled by excess capacity, Marshall Acuff, investment strategist at Smith Barney, says makers of industrial paper are trimmed down and poised to prosper from even a slight pickup in demand. Says Acuff: ''Cost cutting, low inventories, and more efficient mills have put the industry on a far better footing than in previous economic recoveries.'' The business includes linerboard for boxes and bleached board for food packaging. With operating rates likely to average 91% this year -- well above the 85% of the last recession -- industrial papermakers have already enjoyed price increases of 7% to 10%. Acuff especially likes International Paper, the world's largest producer of bleached board and a major maker of linerboard. The company fared better during the recession than most competitors because it has diversified into specialized products with more stable prices. It has also expanded into Europe, where per capita consumption of paper is growing faster than in the U.S. Earnings are estimated to grow more than 40% next year, to $5.75 per share. The stock recently traded at $69. A slightly more speculative play in the industry, but one with great promise in Acuff's view, is Stone Container, recently selling at $21 per share. Because of a $4 billion debt load, taken on to make acquisitions, this company carries more risk than some others. But with three-quarters of its sales coming from linerboard, Acuff thinks it's a great way to play the likely run- up in linerboard prices. He expects it to earn $1.70 per share in 1992 and $3 in 1993.

Acuff also likes Westvaco at $35 per share: ''It has one of the best managements, and it has a superb product mix, with emphasis on value-added and niche products.'' He expects earnings per share to climb nearly 40%, from $2.16 for the year ended in October 1991 to $3 in 1992.

-- CHARLES CLOUGH, Merrill Lynch: Airlines will take wing. Few industries have been through as much trouble in recent years as the airlines. But Merrill Lynch strategist Charles Clough thinks the skies are about to clear. Marginal carriers have either closed down or been greatly scaled back, he says. As a result, airline capacity is trending down. Who will benefit? The survivors, says Clough. He thinks carriers that spent heavily to establish regional hubs are especially well fixed because they now dominate those areas. AMR Corp., the parent of American Airlines, stands to be a clear winner. The company spent years developing hubs in Chicago, Dallas-Fort Worth, Raleigh- Durham, and Nashville. It has also been adding routes to Europe. AMR is expected to lose money in 1991, reflecting a falloff in traffic due to the Gulf war and the recession as well as the latest round of fare wars. But traffic should improve, and price wars should diminish in 1992. Clough thinks AMR could earn $6 a share next year. At $60, he rates the stock a buy. UAL Corp., the parent of United Airlines, should throttle up in the months ahead. With established hubs in Chicago and Denver, UAL has broadened its reach in recent years by acquiring many foreign routes. It is now the leading international carrier among U.S. airlines. United will also lose money this year, but earnings per share should spring back to $8 next year. The stock sells at $126 per share. Southwest Airlines can go head to head with any competitor in a price war. It is the industry's low-cost carrier, with high-quality shuttle service throughout the Southwest. Partly for that reason, Clough expects the airline to make it through 1991 with a 55-cents-per-share profit. Earnings are expected to nearly triple to $1.50 next year, giving the $28 stock a P/E of 18.7.

-- RODNEY LINAFELTER, Berger Associates: Telecommunications will ring up big gains. Few folks have a better knack for spotting hot stocks than Rodney Linafelter, portfolio manager with Berger Associates, in Denver. His firm's accounts have achieved an average annual return of 31.7% over the past three years, vs. 16.5% for Standard & Poor's 500-stock index. Right now Linafelter can hardly contain his excitement for voice and data transmission stocks. ''With major trade pacts being negotiated, cross-border trading is going to explode in the 1990s,'' he says. ''What will be necessary above all else is the ability to communicate.'' Linafelter has two favorite plays -- Telefonos de Mexico (Telmex) and Hong Kong Telecommunications. Both companies trade as ADRs on the New York Stock Exchange. There is an emerging middle class in Mexico, Linafelter notes, and one of the things that middle-class citizens around the world demand is a telephone. As the biggest telecommunications company in Mexico, Telmex is set to grab a fat slice of the business. He expects the company to earn about $3.40 per ADR this year and $4.25 in 1992, and to start to pay a dividend in 1993. Hong Kong Telecommunications is to southern China what Telmex is to Mexico. Guangdong province, which borders Hong Kong, is in the midst of a growth spurt, but its telephone system is inadequate. Hong Kong Telecommunications is the likely candidate to install a telephone system in Guangdong. The ADR sells for $31, and Linafelter expects the company to earn $2 per share in the March 1992 fiscal year and $2.35 the following year. Linafelter also sees a booming market for data transmission technology, particularly the kind that links computers and computer networks. Says he: ''In a global economy you have computers talking to each other, not only in a single office in a local area network, but all over the world.'' So what is the best way to play? Novell is the leader in local area network software. Linafelter expects per share earnings of $1.10 to be announced for the year ended in October, and $1.55 in 1992. The stock recently sold for $47 per share. Cabletron Systems is another of his top picks among data transmission companies. It is both the technology leader and the low-cost producer of intelligent hubs, which connect local area computer networks. He expects earnings of $2.05 per share for the year ending in February, and $2.45 next year. The stock recently traded at $41 per share. Cisco Systems makes routers and bridges, products that link geographically diverse local area networks. ''You can have a local area network in London tied to one in New York, tied to one in Los Angeles, tied to one in Tokyo,'' says Linafelter. He expects Cisco's earnings in the year ending in July 1992 to be $2 a share, giving the stock a P/E of 25. He also likes ECI Telecom, an Israeli company that trades on Nasdaq. The company manufactures digital circuit multiplication equipment, which compresses voice and data by eliminating pauses or spaces in order to send more information across transmission lines. The data decompress at the other end. The shares trade at 18 times expected 1992 earnings.

-- ELAINE GARZARELLI, Shearson Lehman Brothers: Chipmakers will clean up. Semiconductor stocks have lagged behind the market since 1987. But Elaine Garzarelli, a market analyst at Shearson, says they are now ready to break out. Earnings in the industry are down about 15% so far in 1991, but Garzarelli expects an 86% rebound next year. What's more, she says, the stocks are inexpensive. Semiconductor stocks usually sell at a 50% premium to the market's P/E, but lately the premium has been only 14%. ''The stocks are cheap, and earnings are going to jump,'' says Garzarelli. ''Those are the two necessary ingredients for superior performance.'' Semiconductors are used in goods from personal computers to automobiles to home appliances, and the industry's fate is closely tied to industrial production. Garzarelli expects industrial output to expand at a 4.5% clip in 1992, slightly faster than the overall economy. Three companies in particular should do well as activity picks up -- Advanced Micro Devices, Texas Instruments, and Motorola. Says Garzarelli: ''We think the stock market will rise by 15% to 20% in the next 12 months. These semiconductor stocks should go up twice that much.'' All three companies are in a position to profit from higher demand. Advanced Micro Devices has been stealing market share from Intel by selling a re- engineered version of Intel's 386DX chip. The company should earn $1.25 per share in 1991 and $1.60 next year. The stock sells for $13. Motorola's long-term appeal is its booming cellular business, but a recovery in chips should also pay big dividends and lead to earnings per share of $4.10 next year, with a surge to $5.90 in 1993. Texas Instruments may lose as much as $5.10 per share in 1991, reflecting big write-downs for layoffs, but Garzarelli expects earnings to rebound to $2.50 next year and $5 in 1993.

-- FRANKLIN KENNEDY, Equitable Capital Management: Railroads will steam ahead. After three years in a row of declining profits, railroads are about to come roaring back, says Equitable Capital's chief investment officer, Franklin Kennedy. Those tough years were just what management needed to negotiate less costly labor contracts, Kennedy notes. The new agreements will allow the railroads to reduce work crews on trains. That spells higher profits. Even before the labor agreements were adopted last April, the railroads were lightening their loads -- cutting payrolls and improving operating efficiencies through better scheduling and maintenance, which is why Kennedy is ringing the bell for rail stocks in 1992. Says he: ''When you get an industry going through a change like this, people usually underestimate the magnitude of the improvement.'' He thinks railroad stocks will rise sharply as - analysts begin to jack up their earnings estimates. Kennedy's favorite railroad is Consolidated Railway Corp. (Conrail), which operates 13,000 miles of routes in 14 Northeastern states and Quebec. The company has dramatically reduced its work force and introduced management incentives that encourage a renewed emphasis on profits. ''At the bottom of the recession, they were handling as many ton-miles of cargo as two years earlier, with 20% fewer people,'' he says. Kennedy thinks Conrail can earn up to $7 per share in 1992. The stock recently traded at $74.25. Another Kennedy favorite is Burlington Northern, at $37 per share, because of its exposure to the agricultural sector, an area he thinks will do well. He also likes Illinois Central, a smaller, Midwest railroad company that is not widely followed but should get more attention as the industry improves. The stock sells for $29.

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