(2011 consumer stocks story updated with downgrade for Corn Products International and poll question)
NEW YORK (TheStreet) -- Large-scale urbanization of the emerging global economies, a growing aging population in North America and even the tightening grip health regulators has created a wealth of opportunity for consumer staples ranging from those that make the ingredients that go into soda sweeteners to meat processors, beverage giants and tobacco companies.

In 2010, the stable earnings and dividend streams of

cash-rich consumer staples continued to offer a safety mechanism

for investors concerned about a slow growth environment. In 2011, they're expected to offer more than just safety -- they're expected to become exciting.

Consumer Staples Overbought, Says Manager

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With the help of a multitude of analysts, we offer a glimpse into what's in store for the companies that produce the consumer staples. Read on for six stocks that hold upside in 2011.

>>Consumer Staples Overbought, Says Manager

>>5 Top Consumer Stocks of 2010


(KO) - Get Report

Although investors have focused much of their attention on

Coca-Cola Company's

(KO) - Get Report

purchase of bottler

Coca-Cola Enterprises'

( CPO) North American operations for $3.4 billion this year, S&P analyst Esther Kwon continues to factor in the company's huge international footprint. With a presence in more than 200 countries and licensing and marketing rights for more than 500 different brands, developing countries are a huge revenue driver for the company.

"People miss the fact that they have a bunch of different brands, that they can grow in these countries as well. The opportunity in these different countries is still very new." In 1997, Coca-Cola only had five brands exceeding $1 billion in sales at the retail level. That number has grown to 13 in 2010.

Kwon estimates that Coca-Cola will generate more than 20% of its revenue from developing countries in 2011 -- although she may lower that forecast slightly pending more data on Coca-Cola's bottling acquisition. The purchase should contribute to some top-line growth, but not by leaps and bounds, given the maturity of the North American market; Kwon said the main benefits of the transaction are improved operating earnings and cost reductions in the areas of manufacturing, supply chain and logistics.

>>Consumer Staples Overbought, Says Manager

>>5 Top Consumer Stocks of 2010

"We like the ample free cash flow of Coca-Cola," Kwon said. S&P estimates that the company will generate more than $20 billion in free cash flow over next three years. "It's a very good cash flow generation business ... we really see Coca-Cola taking it and doing share repurchases and supporting its dividend." The stock has a dividend yield approaching 3% and has raised dividends at 9.5% compounded annual growth rate over the past five years, which Kwon notes is a "healthy rate." She also likes its valuation, as the stock is trading at the lower half of its historical average forward price/earnings multiple. Coca-Cola has a five-star or strong-buy rating from Kwon.

In an equity research report, Wall Street Strategies analyst David Silver says that over the next six months he expects to see Coca-Cola invest $3 billion into its China operations and those of surrounding areas, and announce a dividend increase. Silver has a buy rating for the stock.

In a client note, Stifel Nicolaus analyst Mark Swartzberg says to expect the company to begin introducing new product package sizes in North America in the coming months to give consumers more options, as well as to increase the average selling price per liter of drink. He says to expect a focus on contour bottles. This, after Swartzberg's recent meeting with Coca-Cola's chairman and CEO Muhtar Kent. The analyst said Kent didn't comment on speculation that Coca-Cola was considering an offer for fruit juice and natural sodas company Hansen, but did says sports drinks, juice drinks and energy drinks were a global priority for the company.


( CPO)

Standard & Poor's analyst Tom Graves has a five-star, strong buy rating for

Corn Products International

( CPO), a major corn refiner and supplier of corn-based food ingredients and industry products. Graves notes with particular enthusiasm this consumer staple's recent "particularly attractive" acquisition of specialty starch supplier National Starch, which serves the food industry heavily.

On Oct. 28, after becoming increasingly confident that the acquisition would result in stronger earnings for Corn Products International, Grave raised his opinion on the stock to strong buy from hold. **On Dec. 14, he lowered his opinion to buy, citing exposure to spot corn prices for certain aspects of Corn Products' business; though the company remains largely insulated from fluctuating corn prices through fixed price contracts.**

>>Consumer Staples Overbought, Says Manager

>>5 Top Consumer Stocks of 2010

But even without National Starch, Graves says he has viewed Corn Products enthusiastically because of its global operations. As greater earnings power and urban migration increase in the developing markets, changing diets and lifestyles inevitably kick in as well. This includes an increasing demand for meat or protein, and packaged foods and drinks. The sweetener found in these packaged items is often high-fructose corn syrup, and the feed used to raise the livestock to fulfill protein demand is often corn; all this translates into more corn demand. One of the most popular uses of corn last year was making sweeteners for products bought in developing markets, according to Graves. "Some of the major food companies have better opportunities outside the U.S. than here," Graves notes.

Deutsche Bank analyst Christina McGlone agrees that Corn Products International is evolving as a more diverse company through its recent acquisition of National Starch. Although management hadn't provided specific guidance on the accretive impact of the National Starch acquisition, the analyst estimates that it will add 65 cents to 75 cents to 2011 earnings per share, excluding synergies, and up to 80 cents, assuming $10 million in synergies. Rafferty Capital Markets analyst Ian Horowitz says in a note to investors that the National Starch acquisition will be a "game changer." He has a buy rating on the stock.

The benefits of the acquisitions are obvious, but Deutsche Bank's McGlone notes Corn Products' stock valuation already reflects this opportunity when an uncertain 2011 pricing environment is factored in.


(MO) - Get Report

Standard & Poor's Esther Kwon has a strong buy, five-star, rating for tobacco giant


(MO) - Get Report

. As the FDA (Food and Drug Administration) continues to tighten its grip on the shrinking tobacco industry and limit its ability to innovate and market products, Altria, the biggest of the group, continues to generate steady returns; after all, the tighter the oversight, the more difficult it would be for new competitors to enter the market, which helps Altria remain as the biggest of the group.

In fact, Kwon said there probably aren't going to be any new competitors any time soon. "That's probably one of the reasons they've been supportive of FDA oversight," as others sued citing first amendment violations relating to issues such as the FDA's push for larger, more graphic warning labels, Kwon notes of Altria. "The thesis is basically anything that restricts innovation or marketing is going to help the leader, which is Altria." Kwon, who has buy, four-star ratings on Altria's smaller domestic peers,




Reynolds American


, generally likes the tobacco leaders for their strength in free cash flow generation and high dividend yields.

>>Consumer Staples Overbought, Says Manager

>>5 Top Consumer Stocks of 2010

Looking ahead, the main challenge for these tobacco companies will be declining U.S. demand, but Kwon thinks they can be weather this. "Tobacco is very resilient," says Kwon, noting that sector history has shown the companies' ability to expand operating margins even with demand decline, given their ability to pass on price increases. She adds that they can also look at consolidation and restructuring to expand operating margins.

Recently, Altria said it was raising prices on all its cigarette brands by 8 cents a pack, starting Dec. 6, which resulted in a roughly 2.2% a pack hike on Marlboro. This came shortly after Lorillard opted to lift its prices on brands Newport -- menthol only, Kent and True by 6 cents a pack, or about 1.5% starting Nov. 30. In an equity research report, UBS analyst Nik Modi told clients that he expects Reynolds American to follow with its own price increases soon. Modi tells clients that tobacco stocks provide a "legitimate" hedge on inflationary pressures.

"While tobacco stocks may see near-term fluctuations due to movements in the yield curve and general money rotation between defensive and cyclical sectors, we believe the sector is poised to see continued outperformance on a total shareholder return perspective given its high cash returns, visible EPS (earnings per share) delivery and unmatched pricing power." Modi has buy recommendations for Altria and Lorillard and a neutral rating for Reynolds American.

The U.S. surgeon general on Dec. 9 published a report that said tobacco, even in very small amounts, and through second-hand smoking, can damage the lungs and DNA right away, and accused U.S. tobacco companies of adding nicotine to its products to intentionally to create more addiction. The U.S. surgeon general has published such reports before, but was even more direct in this one.

In a report, Morningstar analyst Philip Gorham says given that negative tobacco news have been out there for many years already, this recent report is unlikely to have much impact on the tobacco stocks. Although S&P's Kwon notes that ability of tobacco companies to pass on price increases, Gorham believes that a large excise tax increases can actually hurt tobacco stocks, noting that the degree to which prices can be passed on has its limits.


(GIS) - Get Report

Food leader

General Mills

(GIS) - Get Report

, like other food producers, is expected to face higher raw materials costs going forward. But according to S&P analyst Tom Graves, General Mills should manage these costs well. "My sense is it's a company that's going to benefit going forward from an emphasis on providing products for demographic groups that have a growing presence."

Who are these groups? They include older U.S. consumers who are becoming more price conscious and seeking inexpensive food products such as cereals. They also include consumers from the rapidly urbanizing markets of the developing world, who are increasingly seeking the convenience of packaged foods.

"Cereal is a good category to be in," Graves said.

>>Consumer Staples Overbought, Says Manager

>>5 Top Consumer Stocks of 2010

General Mills, which has a five-star, strong buy rating from Graves, currently has a joint venture agreement with


to sell cereal products outside North America. Graves says the stock's forward annual dividend yield of slightly over 3% is "relatively attractive."

The buy opinion from Deutsche Bank's Eric Katzman is based on the company's continued leading market share position in many U.S. food categories. While many associate General Mills with cereals, the company also has leading market share in the yogurt, dough and cake-mix categories.

RBC analyst Edward Aaron, for his part, holds an outperform rating for General Mills and continues to favor the company within the highly competitive packaged food sector. However, he cautions that the company's second-quarter results will likely be roughly in line with, if not slightly lower than, the Street consensus estimate, based on management's recent announcement at a New York consumer conference, that overall business performance in the first half of fiscal 2011 is "tracking generally in line with -- and not ahead of -- strong year-ago levels."

The company reconfirmed that, excluding items, fiscal 2011 earnings per share should be in the range of $2.46 to $2.48 a share versus the $2.48 analysts are calling for.


(TSN) - Get Report

Major livestock seller and producer

Tyson Foods

(TSN) - Get Report

will benefit from increased protein demand overseas as developing market customers experience a growth in earnings power, says Graves. Furthermore, the company has "aggressively" slashed chicken production and continues to benefit from an industry-wide reduction in beef and pork supply, pushing up the prices of its products, Morningstar analyst Erin Swanson notes in a report.

Graves believes the supply of meat will continue to be tight over the next year or so due to previous years' reduction of cattle and hog supply, when higher feed costs and recessionary troubles dampened consumer demand. "You can't replenish herds as quickly as chicken due to breeding cycles," he explains.

Looking into next year, Graves foresees a decline in operating profit due to the possibility of escalations in feed costs -- by far its biggest input cost -- and industry-wide chicken production increases. Still, he maintains a five-star, strong buy rating on the stock based on attractive valuation. Furthermore, Graves anticipates that Tyson will have improved its manufacturing operations in order to better respond to the ups and downs of chicken demand with more flexibility, offsetting cost pressures. Notes adds that Tyson Foods has already achieved some of the more than $200 million dollars of operational efficiencies expected to be achieved in 2011.

>>Consumer Staples Overbought, Says Manager

>>5 Top Consumer Stocks of 2010

Tyson Foods indicated during its fourth-quarter conference call that it expects first-quarter earnings per share similar to that of the fourth quarter's 64 cents a share amount. Analysts, on average, have been expecting first-quarter earnings of 60 cents a share. During the same period last year, the company had EPS of 42 cents.

The company said overall production of chicken, beef, pork and turkey in 2011 should increase, and that domestic availability of protein should be relatively flat due to expected export growth. Deutsche Bank analyst Christina McGlone, who has a hold rating on Tyson Foods, says she's not expecting losses in Tysons' chicken segment in the immediate future due to its "prudent" feed cost hedging.

Meanwhile, Morningstar's Swanson notes in her report that Tyson Food bears continue to question the firm's effectiveness in generating returns on invested capital in light of retired chairman Don Tyson's 70% control over the firm's voting stock. "Capital allocation has been far from effective, as returns on invested capital have lagged our estimate of Tyson's cost of capital," Morningstar's Swanson writes.


(CHD) - Get Report

"Above-average earnings growth consistency and great earnings prospects" are the reasons why Kwon and Graves hold a favorable view of

Church & Dwight

(CHD) - Get Report

. Kwon has given the stock a five-star, strong buy rating. In an investor note, Kwon said she was expecting continued improvement in the company's operating margin and greater sales supported by international expansion, new products and greater distribution power. Additionally, she thinks Church & Dwight will be drawing from a full-year's benefit of cost-savings through its shift to more efficient manufacturing. She also thinks the company can lower costs through acquisitions.

Kwon projects that Church & Dwight's current valuation doesn't accurately portray the company's exceptional growth consistency and future opportunities. Well-known Church & Dwight brands include Arm & Hammer, Brillo Scrub Free and Delicare.

>>Consumer Staples Overbought, Says Manager

>>5 Top Consumer Stocks of 2010

Church & Dwight stock is liked by analysts for its steady earnings growth, but it certainly isn't as strong dividend-wise.

With a forward annual dividend yield of 1%, "Church & Dwight is not a dividend stock," Graves says.

RBC Capital analyst Jason Gere has an outperform rating on Church & Dwight stock and maintains that it should continue to be one of the better EPS growth stories in 2011; however, he doesn't see a need to jump into it in the near-term, especially since domestic consumer staple names may be receiving less attention than the multinational ones at the moment.

The stock, says Gere in an analyst report, is not cheap at the moment, but notes that "an acquisition could serve as a near-term catalyst." Morningstar analyst Erin Swanson says that given its lack of international exposure, Church & Dwight still has a lot of room to grow in production distribution. Sales outside the U.S. account for 20% of the company's annual sales, according to Morningstar.

Investors, in light of these previews of the coming year in consumer good stocks, which stock do you think is poised to outperform the consumer goods sector? Take our poll below to see what



-- Written by Andrea Tse in New York.

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>>Consumer Staples Overbought, Says Manager

>>5 Top Consumer Stocks of 2010

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