Consumer stocks tend to add stability to a portfolio. That’s because these stock market investments sell items, like food, that consumers must buy, regardless of the direction of the economy. The best consumer stocks have built brands that have strong customer loyalty and produce steady, predictable revenue streams.

Many consumer stocks deeply cut their costs during the recession. This has helped them in the economic recovery, by freeing up cash for expanding, upgrading or raising their dividends.

In the a just-published issue of Wall Street Stock Forecaster, our newsletter that focuses on U.S. stock market investments, we’ve upgraded our buy/sell/hold advice on a consumer stock that has been aggressively cutting its costs and putting the savings to good use (including a big dividend increase): food processor Del Monte Foods Co. (symbol DLM on New York).

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Del Monte: A consumer stock with a number of strong brands

Del Monte makes canned fruits, vegetables, sauces and soups. Its leading brands include Del Monte, Contadina, S&W and College Inn.

In 2006, the company bought the Meow Mix line of cat foods and the Milk-Bone dog-biscuit business. These operations complemented its existing pet-food brands, including 9Lives and Kibbles ’n Bits. As well, Del Monte earns higher profits on pet foods than consumer foods like fruits and vegetables. The pet-food division supplied 47% of the company’s sales in the latest fiscal year, and 61% of its earnings.

Stock market investments: Innovative cost cuts give Del Monte an edge

Del Monte faces a number of challenges, including strong competition from larger competitors and cheaper generic brands. As well, big retailers like Wal-Mart, which accounts for 35% of Del Monte’s sales, are demanding larger discounts. Moreover, prices for wheat and other ingredients are rising.

However, the company’s aggressive cost-cutting plan should help it deal with these challenges. The plan mainly involves improving productivity. For example, it has relocated some of its plants to cut the distance between them and lower transportation costs.

Del Monte is putting some of the savings from the plan toward marketing its core brands. In 2010, it spent $216.8 million (or 5.8% of its sales) on advertising, up 54.2% from $140.6 million (or 3.9% of sales) in 2009.

As well, the company aims to spur sales by introducing healthier foods. It also plans to cut the amount of salt in its products by 20% over the next five years.

Buybacks, dividend hike add to this stock market investment’s appeal

Del Monte is also using the savings from the restructuring to buy back shares. It has earmarked $350 million for buybacks over the next three years. Share buybacks raise earnings per share and other per-share calculations, and give the remaining shareholders a larger stake in the company. As well, the company recently raised its dividend by 80%. The new annual rate of $0.36 a share yields 2.8%.

You can get our full analysis, including clear buy/sell/hold advice, on Del Monte and 18 other U.S. stocks in the latest Wall Street Stock Forecaster. What’s more, you can get this issue absolutely free when you subscribe today. Click here to learn how.