I'm going to go out on a limb here: I think we're still in a bear market, and that the bull has not begun charging yet. But where are we in the bear market rally?

If economists' current consensus is correct, and the economy should begin to emerge from recession at the end of the year, then the market should begin to rally roughly six months prior to the end of the recession. In that case, the new bull market would most likely begin in late summer, which means we're currently in a late-stage bear market.

According to a Fidelity study, consumer cyclicals tend to outperform during the later stages of a bear market. However, this is not a normal recession, and therefore not a "normal" bear market. While the market has discounted cyclical factors and many unforeseen cataclysmic events, the odds of an adverse unexpected event are higher in this uncertain environment. As such, they could cause another downdraft.

In addition, consumers are continuing to pay down debt, spend less, and save more, as they attempt to get their finances in order. Therefore, it may be prudent for Fools to remain on defense when it comes to non-cyclical consumer stocks: food and beverage companies, office supplies, personal and household products, and tobacco, among other sectors.

To identify some of the best consumer companies out there, I fired up our Motley Fool CAPS screening tool. I looked for companies in the consumer goods sector with:

  • Market caps of $500 million or greater.
  • CAPS ratings of four and five stars, the top ratings from our CAPS community.
  • Long-term debt-to-equity ratio of no more than 1, since it's more difficult for companies to obtain credit in this market.
  • Current ratio of 1 or more, meaning the companies are at least able to fully cover their obligations.

You can run the screen yourself; here's what my search uncovered:

Company

Market Capitalization (in billions)

LT Debt-to-Equity Ratio

Current Ratio

CAPS Rating (Out of 5)

Coach (NYSE:COH)

$7.3

0.02

2.4

****

J&J Snack Foods (NASDAQ:JJSF)

$0.59

0

3.1

*****

J.M. Smucker

$4.5

0.19

1.2

*****

Kraft Foods (NYSE:KFT)

$33

0.84

1

****

PepsiCo (NYSE:PEP)

$74.5

0.64

1.2

*****

Reynolds American (NYSE:RAI)

$11.4

0.72

1.3

****

Data as of April 29, 2009.

A stock worth nibbling on
J&J Snack Foods just clocked a strong fiscal second quarter in an abysmal economy. Net income surged 81% to $7.2 million, from $4 million last year, as the company cut costs. Sales increased 4% in the quarter. Earnings per share for the second quarter were $0.39, compared with $0.21 in the same quarter last year, crushing the Street's consensus of $0.25 per share. Gross profit as a percentage of sales increased nicely to 30.38% in the second quarter, from 28.01% last year, helped by lower commodity costs, higher pricing, and increased volume in certain product lines.

Sales from supermarkets and the food-service group, which includes snack bars and food stands in venues like malls, stadiums, and sports arenas, generated the lion's share of the revenue for the quarter. J&J Snack Foods has also beefed up its cash reserves considerably, growing cash and marketable securities by a robust 37% since September 2008. What's more, credit isn't a major concern for this company since the snack-foods giant has a $50 million revolving credit facility secured through December 2011.

A stylish Q3 in the bag
Surprisingly enough, designer accessories company Coach turned in a better-than-expected fiscal third quarter, beating analysts' estimates by a penny. Coach said store traffic picked up, whereas overall same-store sales returned to pre-Thanksgiving levels -- a bullish sign. Same-store sales at U.S. stores edged down 4.2% in the quarter, compared with a 13.2% drop during the Christmas season and the lackluster 20% decline still endured by luxury department stores.

This international retailer is defying the global recession, thanks to the power of its brand and some canny cost-cutting. It's also won big on its strategic bet that women would be willing to splurge on still-stylish handbags not priced at the ungodly levels demanded by other designers such as LVMH's Louis Vuitton. That said, the remainder of the year doesn't guarantee smooth sailing, as management warned. Given the uncertainty of the near-term economic outlook, this stock could be a bit rocky over the next few months. But provided that its designs remain fresh, it's still a good bet for the long term.

Take your own shot at the bear
Though I've given you a good start, you'd be truly Foolish to conduct your own due diligence. Be careful on valuation with this sector. Many stocks that my screen yielded were good companies, but traded at fair or excessive values, by my reckoning. Even buying the very best company at the peak of its stock price won't make you any money.

For companies such as Cannon, Hasbro (NYSE:HAS), and ConAgra Foods (NYSE:CAG), I'd personally wait for a pullback. You'll have to decide for yourself whether their projected growth is worth their higher multiples.

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Grin and bear related Foolishness:

Fool contributor Jennifer Schonberger "owns" really long paragraphs, but she does not own shares of any of the companies mentioned in this article. Coach and Hasbro are Motley Fool Stock Advisor selections. Kraft Foods and PepsiCo are Motley Fool Income Investor recommendations. J. M. Smucker is a Motley Fool Inside Value selection. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.