At least this is how we dealt with it today:
When Jenny got off the bus today Jenny said "Mommy is my face ugly"? I said no, you have a beautiful face, Why? That big kid on the bus said I have an ugly face. She was talking matter of fact. I said well that's not true is it? She said no. I said just tell him thank you and ignore him if he does it again and it will make him stop because he will not expect that answer. She laughed and said okay and skipped down the road while I held her hand, with not a care in the world. She didn't cry or whine, discussed it and moved on with her day. Proud of my girl.
I address it head on, give them tools and ask them what they know to help them move on. That words don't always mean what people say. We know the truth about ourselves, that we aren't ugly or stupid that sometimes people that are hurting people say hurtful things. We don't have to put up with it but we have the power over others words if we let ourselves have the power. That we don't have to let words win. I also told her if it keeps happening to tell a teacher and we will make it stop. She was happy and not phased so hopefully that is the end of it.