(FORTUNE Magazine) – With anthrax at the post office, terrorists in the skies, and cryptic warnings to steer clear of malls, it's no wonder the average American is finding the pleasures of home more appealing these days. And given the state of the economy, some may feel they simply can't afford to stray far afield. This nesting trend, though, isn't just an abstract psychological phenomenon--it's playing out in shopping centers, airports, and restaurants across the country. For investors, that raises the question: Have we entered the era of the stay-at-home stock?

A quick glance at the market indicates we may have. Shares of companies that cater to high-end winers and diners have sunk: Smith & Wollensky (SWRG, $4) and Morton's Restaurant Group (MRG, $9), for example, have each lost more than a quarter of their value since Sept. 11. Those that budget-strapped couch potatoes might favor, by contrast--Blockbuster (BBI, $25), Movie Gallery (MOVI, $21), and Hollywood Video (HLYW, $14)--have shot higher. Sales are booming at arts-and-crafts retailers Michael's Stores (MIKE, $47) and Hancock Fabrics (HKF, $10), and the stocks are keeping pace. Pier 1 Imports (PIR, $11), a chain better known for its throw pillows and scented candles than its stock performance, is up 11%.

But let's be frank: No matter how terrorized consumers might be now, for long-term investors a portfolio stuffed with suppliers of macrame sets and wicker end tables is a scary thought indeed. So we hunted down three stocks that stand to benefit if consumers stay close to home in the coming months, but which also have solid growth prospects. And perhaps most important, all are leaders in their fields. As Goldman Sachs analyst Romitha Mally cautions, "Own the bellwether in times of uncertainty."

Any chronic snacker knows that when people are anxious, they turn to food for solace. So do investors: During the 1991 Gulf war, food stocks traded at a 12% premium to the market. (Today the group trades at a 3% discount to the S&P 500, based on 2001 earnings.) The leader here is mac-and-cheese stalwart Kraft (KFT, $35), a newly public company spun off from Philip Morris in June. "Before Sept. 11, I was one of the most neutral on the Street about Kraft," says Mally. "But the economic backdrop has gotten quite uncertain and ugly, and Kraft is well positioned to deliver stable growth." Indeed, earnings jumped 24% in the third quarter from the same period a year ago, helped by strong sales of Oscar Mayer lunchmeats and ready-made pizzas. Kraft trades at 24 times anticipated 2002 earnings, but, says Mally, "with the current backdrop I don't think the stock looks expensive. You're paying a premium for stability." And, perhaps, for peace of mind: "It's a company that's been around since we were children. A lot has happened, and Kraft was there before, during, and after," says Hersh Shefrin, author of Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing. "That's what makes it a comfort stock."

In the weeks following the attacks, consumers also found solace in the lofty warehouses of Costco (COST, $39), where they stocked up on generators, flashlights, batteries, flats of bottled water, and even gigantic tubs of mayo. The company reported that in September and the first week of October, sales were up 10% overall from the same time a year ago, and 4% in the widely watched category of stores open longer than a year. As CFO Richard Galanti explained to analysts, increased demand for basics like food (which make up about half of Costco's revenues) more than offset declines in areas like electronics and jewelry. And while Costco still commands a P/E of 26 times 2002 earnings, A.G. Edwards analyst Brian Postol points out that it's slightly cheaper than its historical average. Not only will cost-conscious consumers have reason to buy in bulk if they're hunkering down at home, but Postol speculates that when they're shopping for groceries, wares like clothing and electronics may prove a tempting distraction--especially if they haven't been to Bloomingdale's for a while. Plus, says David Wolfe, creative director of the Doneger Group, a retail-consulting firm, "People are getting the propaganda message that they're supposed to buy things, so when they see a great price, they're going to buy."

Finally, there's one area where even the hardest-pressed shoppers will be loath to skimp this year: toys for their kids. That's one reason Mark Greenberg, manager of the Invesco Leisure fund, likes Mattel (MAT, $19). "The economy does not have as big an impact on toy sales as people might think," says Greenberg. "If you are going to put in a swimming pool and you get laid off, you may put that off. But, frankly, buying a set of Hot Wheels or one of the Harry Potter toys just isn't that big a deal." Indeed, in a tough third quarter, Mattel didn't disappoint: The company beat expectations by 2 cents and increased revenues to $1.61 billion, from $1.58 billion a year ago. That prompted Merrill Lynch to issue a report on the formerly beleaguered toy giant, entitled "This Restructuring Has Legs Like Barbie." Mattel products like Tickle Me Elmo have been flying off shelves--with help from a new promotion, sales rose from 7,600 in the week ending Sept. 1 to 35,500 in the week ending Oct. 7, says Neil Friedman, president of Mattel's Fisher-Price brands. And the spree could continue through Christmas if consumers spend even a portion of the dollars previously earmarked for travel on holiday gifts instead. Mattel trades at around 17 times 2002 estimates, which Greenberg considers cheap for a stock that is "growing about twice the rate of the overall market, paying off debt, and generating free cash flow."

Mattel is also generating cash that won't go to the bottom line. Since this past December, it had been hammering out details for a New York Fire Department line of "Billy Blazes" Rescue Hero figures. Already, other toys from the Rescue Hero line have been selling briskly; the FDNY models are set to hit New York-area Toys "R" Us shelves in mid-November. Mattel had planned to donate a portion of the earnings to a fire education charity, but since Sept. 11 both it and Toys "R" Us have decided to donate all proceeds to charity, a pledge shoppers--and investors--can applaud.

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