TheStreet.com Ratings: Three Dow 30 Favorites for 2007

This has been the year for the Dow Jones 30, which is up 15% for the year to date and is beating the S&P 500 and Nasdaq indexes handily. Although we would like to celebrate this flight to quality, many of the Dow 30 component stocks now appear fully valued relative to the total market.

So where's next year's bull market in the Dow?

We like the idea of investing in companies that can make competition irrelevant by developing new products and markets, and have growing global businesses and strong balance sheets.

Searching through the Dow 30, we found three stocks meeting that description: Johnson & Johnson (JNJ Quote), American Express (AXP Quote) and DuPont(DD Quote).

Johnson & Johnson is up 12% since the beginning of the year. This pharmaceutical giant currently trades at 16.5 times the consensus forecast for 2007 earnings per share, which calls for conservative growth of 8%, in line with its peers. And like its peers, J&J faces potential challenges to its top drugs, Risperdal and Topamax, from generics. What makes it different from it peers is the fact that it's likely to be able to sustain this earnings growth.

J&J has a diversified portfolio of business lines. International sales accounted for 43% of the total for the first nine months of 2006, and the company has the capital to make opportunistic acquisitions.

Pending acquisitions will fuel J&J's earnings growth.

On Monday the European Commission approved the company's proposed $16.6 billion purchase of Pfizer's consumer health business. This would make J&J the world's largest supplier of consumer health care and over-the-counter medicines. The acquisition could also bring an estimated $600 million in savings a year through cost reductions starting in 2009.

How 'Bout Now Dow? Stocks that look set to outperform

How these stocks have fared against the Dow.

Source: TheStreet.com Ratings