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Barbie dolls are lined up on the wall at a 50th birthday party at Barbie's real-life Malibu Dream House in Malibu, California March 9, 2009. (MARIO ANZUONI/Mario Anzuoni/Reuters)
Barbie dolls are lined up on the wall at a 50th birthday party at Barbie's real-life Malibu Dream House in Malibu, California March 9, 2009. (MARIO ANZUONI/Mario Anzuoni/Reuters)

TheStreet.com

Six strong U.S. consumer stocks Add to ...

Here's a look at TheStreet.com's top six consumer stock picks for the next quarter:

Impressed with Heinz's international exposure and ability to grow volumes without resorting to price discounting, Erin Ashley Smith of Argus Research Company considers Heinz a company with investment potential.

Ms. Smith, for her part, says she is currently looking favorably at companies that have avoided heavily discounting their products and still managed to grow volumes in the weaker economic environment.

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"If you discount too much, it will be difficult to raise prices when the economy recovers," Ms. Smith explains. She also prizes companies that have been able to control costs; management teams that have been able to do so have managed to grow margins despite the recent downturn.

Indeed, Heinz seems to fit all of Ms. Smith's criteria: the company has seen both top-line improvement and volume growth, has been able to maintain pricing without heavy discounting, has posted growing margins, and has realized cost savings. It even boasts, she says, an appealing exposure to international markets.

Thus, when Heinz releases its third quarter earnings on Feb. 25, Ms. Smith says she will key on how the company is faring in international markets, including the United Kingdom and emerging economies. She'll also turn a critical eye to Heinz's Smart Ones frozen meal brand, for signs of improvement. Last year was a tough one for the frozen meals business as consumers cut spending in the category.

Still Heinz's sales from continuing operations grew 2.5 per cent to $2.67 billion in the second quarter, led by double-digit organic growth in emerging markets and acquisitions.

On Jan. 11, Heinz reaffirmed its earnings per share outlook of $2.72 to $2.82 from continuing operations for fiscal year 2010. Smith's own earnings forecast is in line with Wall Street consensus estimates of 71 cents for the current quarter and $2.82 for the year, at the high end of management guidance.

Ms. Smith currently has a buy recommendation on Heinz with a $50 price target, compared to Wednesday's closing price of $43.70.

Despite all the recent negative headlines related to Johnson & Johnson, there may, in fact, be relief on the horizon for the company's suffering investors.

Jan Wald, analyst at Noble Financial Group, believes good times lie ahead for the company's stock performanced and, for his part, has a buy recommendation on the stock -- with a price target of $76, compared to Wednesday's $62.70 closing price. Recently, the J&J brand name has been tarnished by the company's legal battles -- like the two class action lawsuits that have been filed against Wal-Mart Stores(WMT Quote) and J&J over the sale of children's shampoo and baby wash -- allegedly containing a toxin linked to cancer, Reuters reported earlier this month.

This news came shortly after the company's McNeil division issued an extensive product recall that the FDA claims came too late, as well as a Justice Department allegation that J&J and two subsidiaries have been supplying massive kickbacks to one of the nation's largest nursing home pharmacies.

Despite all this, Mr. Wald believes J&J has brighter prospects today than a year ago. J&J's new medical devices are performing well, and Mr. Wald believes close attention should be paid to the company's stents, orthopedics and vision care lines. The company also has a far greater number of drugs in its product pipeline.

"I think if you look at the company's pipelines, they all seem to be stronger than a year ago," Mr. Wald says.

The group's clinical trials for pharmaceutical products are also going reasonably well right now, according to Mr. Wald. "[J&J]has a number of interesting pharmaceutical products that are in phase 3," which means that the company will soon know whether the FDA will approve them or not -- which could definitely help move the stock price in the coming months.

Mind you, not all of J&J's legal battles have been harmful to the company. As Mr. Wald points out, J&J recently got a nice cash windfall after winning a $1.7 billion settlement from Boston Scientific regarding a long-running patent dispute over heart stents.

Likewise, it's worth noting that Johnson & Johnson's better-than expected fourth quarter earnings surprised even a J&J bull like Mr. Wald. Last month, J&J reported fourth-quarter earnings of $1.02 a share and handily surpassing Wall Street consensus estimates of 97 cents a share. "We had expected them to meet, not so much as beat as they did," he explains. Mr. Wald points out that J&J's restructuring efforts greatly aided its bottom line.

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