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A Day for Defense

Defensive stocks rose modestly Wednesday, as a two-week long rotation into the group continued.

Healthcare equipment shares advanced, with medical device makers Biomet (BMET), Baxter (BAX - Get Report) and Medtronic (MDT) slightly higher.

Among healthcare providers, Oxford Health Plans (OHP) gained after the company reported a near 30% gain in fourth-quarter earnings.

The tobacco sector was also partially green, with British American Tobacco (BTI) adding 11 cents, or 0.4%, to $29.16.

"We are in a consolidation phase right now," said Richard Dickson, a technical analyst at Lowry's Research. "And so, you are seeing people move toward defensive areas."

Drug stocks lifted, with Merck (MRK), Pfizer (PFE), and Johnson & Johnson (JNJ).

Technology shares closed sharply lower, as investors fretted over Cisco's (CSCO - Get Report) sales-growth prospects. The stock is up 88% in the past 12 months.

Cisco trades at 34 times Thomson First Call's 2004 earnings estimates of 71 cents a share. Other tech names are more expensive: Yahoo! (YHOO - Get Report) fetches 85 times estimates for 2004 of 53 cents a share.

"We think the market is very toppy," said Peter Blatchford, a trader at Miller Tabak. "But money is coming into the market. With net positive inflows, it has to go somewhere."

In recent days, investors have sought shelter in more reasonably priced defensive groups. Biomet fetches 30 times this year's earnings; British American Tobacco is valued at 12 times 2004 forecasts; Merck has a price-earnings-ratio of 16; and Johnson & Johnson has a PE of 18.

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