I would look at Altria Group ( MO), Reynolds American ( RAI), Phillip Morris International ( PM) and Lorillard ( LO). Altria, Reynolds and Phillip Morris are all trading at or very close to their 52-week highs, and all four stocks have very attractive dividend yields, with Altria Group at 5.5%, Reynolds at 5.5%, Phillip Morris at 3.7% and Lorillard at 4.8%.

Keep in mind that if we do get deflation, the average stock is going to drop since the overall broad U.S. markets will sell off. Stocks generally don't do well when asset prices are being revalued lower and risk is taken off. I can't stress more how important it will be to put on your trend-following hat, since following the trend will be the only way to beat the markets. This means you must watch the markets closely to see which sectors and stocks don't go down.

Netflix

With trend-following in mind, take a look at Netflix ( NFLX), which has been trending higher as the market has been dropping for the past couple of weeks and earlier today reached a new 52-week high before reversing. This is an example of a stock with relative strength that traders aren't willing to sell, even when the market trades off.

I believe this trend in Netflix would continue even if we get deflation because consumers aren't going to give up cheap entertainment when the economic environment around them is crumbling. Netflix would also have pricing power since its services are already reasonably priced. All Netflix would have to do is add more value, and customers would probably accept any modest price increases.

Telecom & Utility Stocks

Another way to win in deflation is to buy high-quality dividend stocks. I would circle the telecommunications and utilities sectors because they should be able to maintain some pricing power since their services aren't easily cut by consumers who need to have electricity and operating phone services during even the toughest economic environment.

The telecom names I would consider here are Verizon ( VZ) with its 5.5% yield and AT&T ( T) with its 5.6% yield. If you want to play the utilities, take a hard look at National Grid ( NGG), which has a whopping yield of 7.7%.

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