Defensive Stocks for Quick Trades as Crisis Looms

NEW YORK (TheStreet) -- Friday, June 1, 2012 will go down in stock market history as another deep pothole on the road to a crisis showdown that will make way for more economic stimulation and massive monetary easing.

The Dow Jones Industrial Average, consisting of the bluest of the blue-chip stocks is now in the minus column for 2012.

In case you were vacationing on Friday, the employment data (new jobs created) looks as exciting as a race among giant tortoises.

Europe is a continent up to its ears in financial crisis and mountains of unpaid debt with little hope for a quick fix.

Reuters posted the following quotes: "This puts the Fed firmly in play and they will likely feel compelled to respond," said Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York, after data on Friday showed U.S. job growth in May was the weakest in a year.

"The missing ingredient preventing the Fed from action had been the equity market, but now we are seeing it softening," Porcelli said. "Equities are falling and that was the last hurdle for Fed policy action because all the other criteria have been met."

So that helps explain why precious metals stocks exploded to the upside Friday, with companies like Goldcorp ( GG) surging 9%, IAMgold ( IAG) up 9% and Kinross Gold ( KGC) up over 7%.

The worldwide financial caldron and the spreading economic influenza are beginning to drive speculators and sophisticated traders into precious metals contracts as well as big direct purchases of gold and silver.

This is what some call the "inflation trade". What it correlates to is the idea that the world's major governments and their central banks are about to step on the accelerator.

What accelerator am I referring to? It's the one that spews out hundreds of billions of dollars in added monetary liquidity. The perceived result is that the buying power of the world's major paper currencies will be or is already decreasing.

Another way of saying this is that investors are plunging into gold and silver contracts anticipating an inflationary scenario that looked much more probable on Friday.

Investors are assuming things are shaping up more in that direction "...than it did earlier in the week; that the U.S. government will step in again to prop up the economy", said Bob Gelfond, CEO of MQS Asset Management, a New York hedge fund.

QE3 style government intervention drives down the perceived value of the dollar, which had been rising lately. Gold is still viewed as a hedge against inflation, which is part of the reason it skyrocketed over 4% on Friday to $1,626 an ounce.

The yield on the 10-year U.S. Treasury bond sank to an all-time low last week of 1.46%, so at some point it also looks like total-return investors may start chasing dividend yields.

They'll consider stocks like utilities, consumer staples and maybe even healthcare stocks.

Take a look at the healthcare sector and its representative ETF, the Health Care Select SPDR ( XLV).

Pfizer ( PFE) makes up 12% of the weighted holdings of XLV and pays a 4% dividend. Johnson & Johnson ( JNJ) (JNJ) also weighs in at 12% of the XLV, and pays close to a 4% dividend.

J&J is currently trading at a forward price-earnings ratio of below 12, and Pfizer is at a forward P-E ratio of only 9.21.

A majority of analysts prefer J&J because it's perceived as the world's largest healthcare company with a gigantic compliment of products including over-the-counter treatments, prescribed drugs and medical devices.

Look at a one-year comparative chart of J&J and Pfizer to guide you. When you study it carefully, you'll see they tend to move in tandem.

Neither J&J nor Pfizer have out-performed the S&P 500 but they may temporarily be perceived as stocks that are safe havens that pay the shareholder to wait and see what else goes on sale before the current stock market correction runs its course.

They may see a temporary "pop" before the blood stops running in the street. Then there will be even better opportunities that I'll steer you towards before the rest of Wall Street wakes up to what's happening.

Disclosure: At the time of publication, Marc Courtenay was long GG, IAG, and KGC.

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