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These Fine Funds Are Betting Heavily on Consumer-Defensive Stocks

A resurgence in staple names could drive strong performance.

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After a red-hot first quarter, investors may be wondering what's next for stocks. Is there any upside left?

Although the companies under coverage at Morningstar are fairly valued, in aggregate, the most recent quarter-end insights from our stock analysts revealed optimism for stocks in our newly created consumer-defensive sector. That sector comprises companies that manufacture and sell products that consumers buy regardless of the economic climate: food, beverages, household and personal products, packaging, and tobacco. Additionally, certain retailers such as  Wal-Mart  (WMT) and companies that provide education and training services fall under the consumer-defensive umbrella.

Even though continued inflationary pressures and still-anemic wage growth could put pressure on consumers, our analysts expressed confidence that consumer packaged goods will continue to recover in 2011. And while consumer discretionary stocks have had a heyday during the past two years, our analysts foresee discretionary stocks taking a back seat to the consumer-defensive universe. Our analysts are particularly attracted to wide-moat consumer-defensive stocks--those that benefit from economies of scale, enjoy pricing power in at least some of their product categories, and have a foothold in emerging markets. Click here to read the full report on our outlook for the consumer-defensive sector.

Esther Pak does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.