So it's working more closely with the industry. For instance, defense contractors usually have scant incentive to cut costs because the Pentagon limits their profit margins. But the Pentagon may allow contractors to retain cost-savings in the future. Nevertheless, Chao believes the sector remains undervalued by historical standards. Chao sees that multiple moving up toward 10 times cash flow over the next two years.
Consumer products are an old defensive standby.
As a result, argues Lauriann Kloppenburg, equity research director at Loomis Sayles, the sector is filled with unappreciated growth stories. The company's recent price hikes are sticking, Kloppenburg says. Another plus is that industry consolidation has cut capacity, giving the company room to increase market share. Co. She points out that half of the company's business is in emerging markets, so it stands to benefit as Asian economies rebound. Hay also praises the efforts of management, led by Avon's new CEO Andrea Jung, to expand beyond its ''Avon Lady'' sales force to shopping malls and the Internet.