Consumers mean profits: Vivian D. Hairston says consumer staples provide solid growth under various economic conditions.

Whether the economy is up or down, there are always items that consumers will buy--soap, diapers, food, and medicine among them. Vivian D. Hairston, assistant vice president and portfolio manager at Unizan Financial Services Group, tracks the companies that produce consumer staples and discretionary items and keeps careful watch for trends that may affect consumer spending. "My research focuses on those things that affect a consumer's willingness to either purchase or not purchase particular products in the marketplace," explains Hairston.

Tracking consumer staples is just one of Hairston's responsibilities. She is primarily responsible for managing $94 million in assets at the Canton, Ohio-based financial management firm and selecting stocks for employee benefit programs, retirement plans, and high net-worth individuals. Hairston takes a "top-down approach to investing" that starts with determining which industries are strongest based on where the overall economy is going. "We are really looking at companies that have a solid track record of performing in various economic cycles; have a good management team; and are statistically cheap, which means that they are stocks that we believe are undervalued and have the potential to increase their value at a reasonable growth rate," she says.

Using those parameters, Hairston compiles an annual buy list of 25 stocks that changes as some stocks become more attractive than others. Among the investment opportunities she believes will outperform during the next 12 to 18 months is PepsiCo Inc. (NYSE: PEP), a company that manufactures, markets, and sells snack foods, soft drinks, and other food items. Among the company's more popular products are Lay's potato chips, Pepsi, Quaker Oatmeal, and Rice-A-Roni. "I like Pepsi because the company has announced that they plan to introduce products that will focus on health and wellness," says Hairston. "We anticipate that this is going to drive earnings in 2005."

Another manufacturer of consumer products that Hairston likes is Procter & Gamble Co. (NYSE: PG), which operates in five business segments: baby and family care, beauty care, fabric and home care, healthcare, and snacks and beverages. "Procter & Gamble has done extremely well by adding to its cash flow and expanding its margins. The company does this by consistently developing innovative products," says Hairston. "This year the company plans to focus on expanding its presence in emerging markets, where they believe there's a lot of room for growth."

On the retail side, Hairston picks Walgreen Co. (NYSE: WAG), operator of a chain of retail drugstores that sell prescription and nonprescription drugs as well as general merchandise. Hairston is encouraged by the company's consumer-friendly approach that lets customers purchase their prescriptions via 24-hour drive-through facilities, mail, or the Internet. She also likes Walgreen's management. "Not only is Walgreen focusing on convenience but in terms of their balance sheet, they don't have any long-term debt," Hairston explains.

Another retail store Hairston says will enjoy improved earnings is Lowes Cos. Inc. NYSE: LOW), a company that sells products and services for home improvement and home decor, as well as commercial building maintenance and remodeling materials. Hairston thinks Lowes will give its chief rival, The Home Depot, a run [for its money because it plans "to continue to expand its operations into metropolitan areas where we think it will gain greater market share and increase profits. This year, they're planning to offer more installation products like cabinets, carpets, and the like. And they are developing strategic supplier relationships with professionals like carpenters and plumbers."

                                12- to 18-        P/E       Est. 5-Yr.
Company                           Month        Projected    Annual EPS
(Exchange: Symbol)    Price *  Price Target  2005 Earnings  Growth Rate

PepsiCo Inc.          $53.49     $60.00          21            11%
(NYSE: PEP)

Procter & Gamble Co.  $55.99     $60.00          22            10%
(NYSE: PG)

Walgreen Co.          $43.16     $46.00          26            16%
(NYSE: WAG)

Lowes Cos. Inc.       $57.44     $63.00          21            17%
(NYSE: LOW)

Company
(Exchange: Symbol)    Why Stock Will Outperform

PepsiCo Inc.          Pepsi's new health-conscious products should
(NYSE: PEP)           drive earnings.

Procter & Gamble Co.  P&G's expansion into emerging markets
(NYSE: PG)            will likely increase sales.

Walgreen Co.          Walgreen's consumer prescription drug
(NYSE: WAG)           services should increase company market share.
                      Company also has no long-term debt.

Lowes Cos. Inc.       More store openings in metropolitan areas
(NYSE: LOW)           should boost Lowes' profits.

SOURCE: VIVIAN HAIRSTON, UNIZAN FINANCIAL SERVICES GROUP

* AS OF JAN. 18. 2005