And while some would argue that rising prices will push consumers to less expensive store brands, it's important to remember that many of the large consumer brand manufacturers are putting the same products in plainer wrappers and selling them as generic brands. The margins might be a little lower, but the manufacturer is still capturing the sale.

For example, Ralcorp (NYSE: RAH), the maker of Post cereals, also makes 50 store brand cereals that are "comparable to the national brands in terms of taste, appearance and nutrition." That's because it's the same stuff. One is in a Post Bran Flakes box and the other is in an IGA (Independent Grocers Alliance) box. The Post box costs more because Ralcorp supports it with advertising, couponing, paying for shelf space and so on. It shares none of those costs associated with the IGA box.

Same cereal, different box.

Consumer Staples Sector Are Still Cheap

Although the consumer staples sector has rallied over the past year, the stocks are still cheap by historical standards. As you can see in the chart below, eight of the top 10 holdings of the XLP are trading with price-to-earnings ratios that are lower than their 10-year average. As a group, the stocks are trading 17 percent below their 10-year average.
To see the chart in its original size, click here.

As a whole, the 10 stocks are trading slightly below the S&P 500's 16.1 P/E ratio.

On a forward PE basis, they're trading at just 13.7 times earnings, also below the S&P 500.

Additionally, these 10 stocks have an average dividend yield of 2.9 percent, significantly higher than the 2.1 percent yield of the S&P 500. While 2.9 percent is not an especially robust yield, it's solid for today's low-interest-rate environment. The stock prices also aren't subject to the whims of madmen in foreign lands the way energy stocks and gold stocks are (although gold might be more tied to madmen in our own country).

Consumer Staples – An Undervalued Sector With Above-Average Yield

The consumer staples group represents an undervalued sector with an above-average yield during a period that suggests further market gains are likely.

But should stocks correct, as you can see from the first chart, consumer staples stocks tend to suffer less severe declines than the broader market. They're a unique way to play offense and defense at the same time.

Good investing,

Marc Lichtenfeld