How have any companies under your coverage versus expectations thus far?

In the industries under my coverage, 14 companies have reported earnings for the second calendar quarter. Half of the companies reported upside surprises resulting in the stocks rallying between 5% and 9% on the day of the earnings report.

I discern two significant pieces of information from these earnings reports and the subsequent stock reaction: 1) stocks have declined to an attractive level from which any good news sparks a significant rally, and 2) the operations of consumer staples companies have not been adversely affected by the credit crisis and high energy prices.

What are you expecting from this industry as a whole this quarter?

With half the earnings reports being delivered above expectations, I expect the consumer stocks to continue outperforming the stock market, despite having outperformed for the two prior years. Valuations are generally in the middle quintile of historical ranges. With unemployment at 5.0% in June and steep declines in new home sales, economists are somewhat in agreement that the economy's de-acceleration will result in a recession.

In this environment, the Consumer Staples sector has traditionally performed better than the stock market. Institutional portfolio managers should continue to favor the Consumer Staples sector, especially in the second half of the year when cyclical companies should report disappointing earnings.

Which are your top Buy recommended stocks in this space?

With the recent decline in equity values, I have upgraded several stocks to a Buy: Avon Products (AVP), Snap-on (SNA), DeVry (DV), and Strayer Education (STRA).

Avon appears attractive on a valuation basis. Though the company's direct selling business model is struggling in the mature market of the U.S., sales are growing at a double-digit rate in Latin America, Western Europe, Middle East and Africa. And in China, sales increased 29% in the most recent quarter. Management is still aggressively emphasizing the higher margin Beauty products and has instilled financial discipline through a multi-year supply chain cost reduction program.