When the market weakens, any industry that manages to keep its business relatively healthy deserves a closer look from investors. Although capacity utilization rates fell sharply late last year and early in 2009, some industry groups hit bottom last November, and they've held their lows ever since. That suggests they could lead the economy out of recession, producing strong stock returns along the way. Leading that particular pack: the food and beverage industry.

You gotta eat
This group is a part of the broader consumer staples sector, which was the best performer in 2008, losing only about 15%. Consumer staples in general, and food and beverage stocks in particular, are very defensive, and they're not as exposed to the ongoing consumer deleveraging that may represent a long-term trend. I've recently praised J.M. Smucker (NYSE:SJM), but it's just one of the many stocks now benefiting from consumers' newfound frugality.

Kraft Foods (NYSE:KFT) once suffered in the shadow of Altria Group (NYSE:MO), despite its status as the second-largest food company in the world. The stock has done little since Altria spun it off in 2001. But Warren Buffett's 9% stake in Kraft suggests that the company has more to offer than a flat stock price.

Kraft is a long-term restructuring story. The company saw all of its business lines grow during 2008, at a time when most corporations faced serious revenue issues. Total 2008 sales grew almost 17%, including the acquisition of Group Danone's global biscuit business, and recent quarterly earnings show that last year's cost-cutting measures are now bearing fruit. Like Smuckers, Kraft benefits from consumer retrenchment -- but on a much larger scale. The shares yield more than 4% and trade at 14 times earnings. That's a sustainable dividend higher than the 10-year Treasury yield, at a time when such steady payouts are in high demand.

Buffett has another substantial stake in General Mills (NYSE:GIS), which is also benefiting from similar trends like Kraft. The difference is that while Kraft has been asleep when it comes to its share price since 2001, General Mills has been quietly moving higher through two recessions, despite a substantial drop earlier this year. The stock yields a sustainable 3.2% and trades at about 15 times earnings.

Keep your wealth liquid
Buffett is also the largest shareholder of Coca-Cola (NYSE:KO). That stock hasn't done particularly well in the past 10 years -- but then, neither has the overall stock market. Before that period, Coke was a very successful investment for Berkshire … and it may be so again.

Coke seems to be turning around. There are still areas for improvement, of course; it has to catch up with PepsiCo (NYSE:PEP) in the sports drink market, where Gatorade holds 77% market share. But Coke is an international icon, and with its global presence, it will benefit from dollar depreciation and strong growth abroad. A possible future listing on Chinese stock exchanges could increase Coke's exposure abroad as well.

Trouble on the way?
Volatility in commodities prices could still take the wind out of food stocks' sails. Droughts in India, the largest consumer and second-largest producer of sugar, have dramatically increased prices for the sweet stuff. India will likely double its sugar imports this year, putting further pressure on the commodity's cost. That may be a bigger problem for concentrated businesses such as Hershey (NYSE:HSY) than it is for either Kraft or General Mills, but a renewed increase in any commodity's price could renew investors' concerns about profit margins.

Despite those potential threats, food and beverage stocks enjoy stable earnings and revenue and attractive valuations. They may not do as well if the market suddenly starts soaring, but they're unlikely to decline as much in a sell-off. In the end, you may find that trade-off perfectly delicious.

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