The bull case for the market's worst group of stocks this year

Consumer staples is the worst-performing S&P 500 sector this year, but Chad Morganlander of Washington Crossing Advisors says the group looks so bad, it's actually good.

This comes even as interest rates are on the rise and the benchmark 10-year Treasury note yield closes in on the psychologically precarious 3 percent level; typically, staples suffer in such an environment, as rising bond yields create competition for the group. Here are Morganlander's reasons for his bullish view.

• The group has fallen nearly 12 percent this year, far underperforming the broader market, and the group's valuation makes sense at this juncture.

• Single stocks like Hormel, Pepsi, McCormick and Walmart will likely thrive, particularly Walmart, with a further push into e-commerce. The market under-appreciates the profitability, growth and balance sheets among these names.

Church & Dwight, the staples giant, is one particularly strong play in the space.

Bottom line: Consumer staples can weather the storm of rising interest rates, according to one portfolio manager.

Disclosure: Morganlander's firm owns Hormel, Pepsi, McCormick and Walmart in its portfolio. Morganlander personally owns Church & Dwight.

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