10 Consumer Stocks for the Stay-at-Home Investor (Update1)

(Story updated to add that Dollar General's fourth-quarter earnings rose 31%.)

BOSTON ( TheStreet) -- Perhaps the best suggestion for investors seeking new opportunities is to stick with consumer-oriented stocks with a U.S. focus.

At least that's what S&P Capital IQ is suggesting. That's because the recent strong performance of "more globally insulated, domestic sectors like consumer discretionary, financials and information technology" will continue as the Federal Reserve hints that it's not yet done priming the pump for a U.S. economic recovery. All the while, macro-economic jitters continue to emanate from Greece and China, putting a damper on international growth stocks.

"We see this grudging rally persisting with U.S.-focused, globally insulated sectors likely continuing to lead the way," said Alec Young, S&P Capital IQ's global equity strategist, in a research note Tuesday.

S&P specifically recommends an "overweight" to consumer companies as consumer-discretionary stocks are seen "benefiting from the Fed's accommodation and improving U.S. news flow," and consumer-staples stocks "from inelastic demand and strong dividend growth."

Underscoring that, S&P's Consumer Discretionary Index is working on its 11th weekly gain in 12 weeks, "one of the most consistent runs for the discretionary sector since 1998," said Young. The S&P Consumer Staples Index is heading toward its eighth straight positive week.

Consumer-discretionary stocks are up an average of 14.5% this year, while consumer staples are up 3.5%. The S&P 500 Index has risen 12.9%.

S&P also suggests an overweight to the industrials sector on the basis of "easy U.S. and European monetary policy," while noting that it is more globally oriented and highly cyclical, and hence potentially more volatile.

For the market in general, Young said that while U.S. corporate earnings growth has slowed sharply this quarter and many stocks are approaching full value on a price-to-earnings basis due to the sustained rally, "we see few catalysts for a major near-term setback given unprecedentedly easy global monetary policy."

That's because "whenever equity markets have recently wobbled amid growth fears, central bankers have been quick to reassure, rekindling risk appetite. Look no further than the latest surge to new highs (Monday) likely triggered by (Federal Reserve Bank) Chairman Bernanke's assertion that accommodative policy is still needed to ensure a self-sustaining recovery."

Here are 10 stocks from the consumer-staples and consumer-discretionary sectors with excellent long-term prospects ranked in inverse order of the number of analysts' "buy" ratings:

10. PetSmart ( PETM)

Company profile: PetSmart, with a market value of $6 billion, is a retailer of pet food, supplies, and services with 1,250 stores in the U.S. It has about 12% of the market and revenue has increased steadily over the past six years.

Investor takeaway: Its shares are up 13% this year and have a three-year, average annual return of 40%. Analysts give its shares four "buy" ratings, seven "buy/holds," and 13 "holds," according to a survey of analysts by S&P. S&P has it rated "buy," with a $62 price target, which is an 8% premium to the current price.

It says: "The overall market for sales of pet-related products and services is increasing in the low- to mid-single digits, due to favorable trends such as rising pet ownership and greater expenditures per pet" which boosts the company's medium-term growth potential. It is also growing its high-margin services such as grooming, Doggie Day Camp,and the overnight boarding service PetsHotel.

9. Kelly Services ( KELYA)

Company profile: Kelly, with a market value of $562 million, is a provider of workforce solutions including outsourcing, consulting, and temporary hiring services.

Investor takeaway: Its shares are up 14% this year and have a three-year, average annual return of 22%. Analysts give its shares four "buy" ratings, and two "holds," according to a survey of analysts by S&P. S&P has it rated "strong buy," because employers are still very cautious in their hiring practices, and so will continue to hire temporary workers, in particular non-skilled temporary workers, and that's the company's primary market.

8. Corn Products International ( CPO)

Company profile: Corn Products, with a market value of $4 billion, sells various ingredients to food and industrial customers. It is a leading supplier of starch and sweetener ingredients to a range of industries. It has a name change in the works and plans to soon call itself Ingredion.

Investor takeaway: Its shares are up 8% this year and have a three-year, average annual return of 37%. Analysts give its shares six "buy" ratings, two "buy/holds," and three "holds," according to a survey of analysts by S&P. Analysts estimate it will earn $5.16 per share this year, and grow by 9% to $5.61 per share in 2013. S&P, which has it rated "buy," says that long term, "we look for CPO to have increasing contributions from value-added product lines, and to benefit from expansion in growth regions such as Asia" although corn price volatility on fixed price contracts is always a threat to earnings.

7. O'Reilly Automotive ( ORLY)

Company profile: O'Reilly, with a market value of $11.5 billion, is the second-largest auto-parts retailer in the U.S., with over 3,700 stores.

Investor takeaway: Its shares are up 14% this year and have a three-year, average annual return of 38%. Analysts give its shares six "buy" ratings, five "buy/holds," 13 "holds," and two "weak holds," according to a survey of analysts by S&P. For fiscal year 2012, analysts estimate it will earn $4.52 per share and that will grow by 13% to $5.13, in 2013. Revenue and net income have risen steadily over the past four years. It has benefited from taking market share from smaller retailers and so has a greater presence in the do-it-yourself marketplace.

6. Staples ( SPLS)

Company profile: Staples, with a market value of $11 billion, is the world's leading office products company, with more than 2,000 stores in 25 countries, but mostly in North America.

Investor takeaway: Its shares are up 20.5% this year and have a three-year, average annual decline of 1.5%. Its shares carry a 2.6% dividend yield. Analysts give its shares seven "buy" ratings, five "buy/holds," seven "holds," and two "weak holds," according to a survey of analysts by S&P. S&P, which has the shares rated "buy," says that "while the office supply industry is mature, with limited long-term growth potential, in our view, we believe Staples will continue to capture market share from peers."

5. Tempur-Pedic International ( TPX)

Company profile: Tempur-Pedic, with a market value of $12 billion, makes premium foam mattresses, pillows, and other sleep system products. About two-thirds of its sales are in the U.S.

Investor takeaway: Its shares are up 60% this year and have a three-year, average annual return of 121%. Analysts give its shares seven "buy" ratings, three "buy/holds," and four "holds," according to a survey of analysts by S&P. Analysts estimate it will earn $4.02 per share this year and$4.74 per share next year, an 18% increase.

S&P, which has its shares rated "buy," says: "We expect (it) to continue to gain market share due to its high-quality bedding products and increased public awareness of better mattresses and their effect on the quality of sleep." It's expected the company will benefit from an improving economy and a rise in home sales as that is when people tend to buy new bedding.

4. CVS Caremark ( CVS)

Company profile: CVS, with a market value of $58 billion, is one of the nation's largest retail pharmacy chains, with more than 7,000 stores, and one of the biggest pharmacy benefit managers after its merger with Caremark. It also operates retail health clinics under the MinuteClinic brand.

Investor takeaway: Its shares are up 11.6% this year and have a three-year, average annual return of 18%. Analysts give its shares 10 "buy" ratings, 10 "buy/holds," four "holds," and one "weak hold," according to a survey of analysts by S&P. S&P has it rated "strong buy," with a $54 price target, which is a 31% premium to its current price and says the company stands to benefit from favorable demographics resulting in increased customer drug utilization and as a significant increase in generic drug offerings boosts operating margins.

3. Dollar General ( DG)

Company profile: Dollar General, with a market value of $16 billion, is the largest dollar-store chain in the U.S., with more than 9,300 stores in 35 states.

Investor takeaway: Its shares are up 11% this year and have a 45% return over the past year. Analysts give its shares 11 "buy" ratings, seven "buy/holds," and eight "holds," according to a survey of analysts by S&P. Despite its obvious appeal in a tough economy, this store chain has proven it may continue to do well no matter the economic environment.

S&P says "we see (it) retaining existing customers and gaining new higher-income shoppers with its focused assortment of consumables, including expanded health and beauty aid offerings." Analysts estimate it will earn $2.32 per share in 2012, and $2.72, in 2013, or 17% growth. Last week it reported that its fourth-quarter earnings rose 31% on a rise in same-store sales. For the quarter ended Feb. 3, the company reported earnings of 85 cents per share, versus 64 cents last year, besting analysts' 82 cents per share estimate. Sales grew 20%, to $4.2 billion.

2. Home Depot ( HD)

Company profile: Home Depot, with a market value of $76 billion, is the world's largest home-improvement retailer with over 2,000 warehouse-style stores, primarily in North America.

Investor takeaway: Its shares are up 20% this year and have a three-year, average annual return of 31%. Analysts give its shares 13 "buy" ratings, four "buy/holds," 14 "holds," and one "weak hold," according to a survey of analysts by S&P, which itself has it rated "sell," on valuation concerns.

Home Depot has weathered the economic slowdown in fine shape. An economic recovery and a rise in home sales will benefit the company as consumers spruce up their homes for resale or to make long-postponed improvements. Sales and earnings peaked in 2007, but the past three years have shown steady improvement.

1. Amazon ( AMZN)

Company profile: Amazon, with a market value of $91 billion, is the highest-grossing online retailer in the world, with $48.1 billion in net sales in 2011.

Investor takeaway: Its shares are up 19% this year and have a three-year, average annual return of 43%. Analysts give its shares 18 "buy" ratings, six "buy/holds," and 15 "holds," according to a survey of analysts by S&P. Analysts estimate it will earn $1.27 per share this year and $2.61 per share next year, a 106% increase.

S&P has it rated "hold," on valuation concerns, but it sounds plenty bullish, saying "we consider Amazon a best-in-class retailer that generates significant free cash flow" and that its various initiatives will result in continued strong sales results and significant margin expansion.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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