Consumer staples stocks are breaking out this month and Wall Street analysts share how to play the sector. The consumer staples sector is the best performing S & P 500 group this month with a nearly 8% gain. The ETF that closely tracks the sector, the Consumer Staples Select Sector SPDR Fund , closed Thursday at a record high. But picking consumer staples winners could be trickier going forward, RBC Capital Markets analyst Nik Modi told CNBC's " The Exchange " on Friday. "Market dynamics have favored staples for the past few weeks. But year-to-date, the sector has massively underperformed. It kind of depends on the mood of the market," Modi said. The sector is up about 12% this year versus the S & P 500's roughly 23% gain. Consumer staples performance tends to correlate with how much investors are focused on Covid and interest rates in a given moment, Modi said. When interest rates shoot up, investors tend to get defensive, according to Modi. Defensive stocks are shares that tend to be stable regardless of how the overall market performs. Market strategists typically categorize the utilities, health care and consumer staples sectors as defensive. That could help explain why consumer staples are on a run this month. The Fed on Wednesday announced it will aggressively wind down its asset purchases, paving the way for rate hikes next year to fight inflation. "The way we think about stock picking is really about, how can we fundamentally pick the names that will perform well, despite what's going on in the macro environment?" Modi said. Pricing power is a key differentiator for consumer staples, Wall Street analysts say. They like companies that can easily pass on higher costs to customers by raising prices. Companies will have a harder time raising prices or keeping prices high in 2022 as pandemic stimulus dries up, according to Goldman Sachs' Jason English said. "History suggests that price sensitivity will rise as consumer cash in-flow shrinks. As such, we expect pricing power to become less ubiquitous as a result," English said in a note Tuesday. Goldman also likes companies with relatively lower cost pressures and those poised to benefit from increased demand as mobility picks up next year. Take a look at some of the consumer staples names recommended by analysts at Goldman, JPMorgan and Deutsche Bank heading into 2022. Coca-Cola is a top consumer staples pick at JPMorgan. The firm upgraded shares of the beverage giant on Monday, saying Coca-Cola's strong brand name should allow the company to flex its pricing power while the reopening should boost revenue for on-premise transactions. Procter & Gamble is one of the best-positioned stocks for pricing power within the household products category, according to Goldman Sachs. Deutsche Bank also likes the stock, saying the firm remains "favorably biased towards strong momentum at PG." Also on a few lists is Constellation Brands , the parent company of Corona Extra, Modelo Especial and Svedka Vodka. Goldman said Constellation has stronger price power than other peers and should benefit from increased mobility. Other names recommended by analysts include Mondelez International , Monster Beverage and Olaplex . —CNBC's Michael Bloom contributed to this report.
A worker restocks a display of Coca-Cola Co. soft drinks at a store in Orem, Utah, U.S., on Tuesday, Feb. 9, 2021.
George Frey | Bloomberg | Getty Images
Consumer staples stocks are breaking out this month and Wall Street analysts share how to play the sector.