It's Not Just Rates Favoring Pharma, Med Plays

Conservative dividend investors should be most attracted to Johnson & Johnson, GlaxoSmithKline (GSK - commentary - Cramer's Take), Merck (MRK - commentary - Cramer's Take) and Pfizer (PFE - commentary - Cramer's Take). All have A+ or better financial strength ratings and all are sitting at support or just breaking out of support levels. This should help limit any downside risk in these stocks. I am particularly attracted to the above-average yield of GlaxoSmithKline, which is at 5%, and the fact that the payout ratio is a fairly reasonable 57% of earnings; in other words, the dividend looks safe. (The same can't be said for the nice dividend yield offered by Bristol-Myers Squibb (BMY - commentary - Cramer's Take). There is some danger it may be cut.)

More aggressive investors may be attracted to those stocks that already show better price action than others in the industry. With the idea that this outperformance may continue, they would be most interested in buying Abbott, Baxter or Lilly (LLY - commentary - Cramer's Take), and perhaps Mentor on a pullback. Again, the price action has been better in these stocks and that may well continue. Still, even aggressive investors should recognize that there now is more downside risk in these stocks because they have moved significantly away from support levels.

Investors who have no exposure to either the pharmaceutical or medical-supply industries and/or are looking to increase their holdings should focus on Wyeth (WYE - commentary - Cramer's Take), GlaxoSmithKline, Pfizer and Johnson & Johnson. They all are breaking out of support levels and have limited downside risk. Take a look at the 10-year charts for each:

Wyeth		GlaxoSmithKline
Pfizer		Johnson & Johnson

Again, there are a lot of A-rated companies in these industries that have lagged the market and have beautiful balance sheets and dividend-growth potential. They offer limited downside risk and relatively low volatility in an otherwise volatile market. All should appeal to stock dividend investors looking for quality blue-chip companies that offer good price appreciation potential and healthy dividend yields.

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At time of publication, Chaussee and/or his clients were long Abbott Laboratories, Baxter International, Bristol-Myers Squibb, GlaxoSmithKline, Johnson & Johnson, Merck, Pfizer and Wyeth, although holdings can change at any time.

Stuart Chaussee is a registered investment adviser specializing in dividend-paying, blue-chip stocks. He is also the author of three investment books, including Advanced Portfolio Management: Strategies for the Affluent. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Chaussee cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to [e-mail].