2 Defensive Healthcare Stocks With Good Dividends, Low Valuations

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 |  Includes: LLY, MDT
by: Bret Jensen

Given the tough slog the market is currently going through, I think it pays to be defensive. Here are two health care stocks with good dividend yields, low valuations and solid technical support.

Eli Lilly (NYSE:LLY):

Eli Lilly and Company develops, manufactures, and sells pharmaceutical products worldwide. It offers neuroscience products to treat schizophrenia, manic episodes, and bipolar maintenance; depression and diabetic peripheral neuropathic pain; attention-deficit hyperactivity disorder in children, adolescents, and adults; bulimia nervosa and obsessive-compulsive disorders; and bipolar depression and treatment-resistant depression”. (Business description from Yahoo Finance)

4 reasons LLY is a solid bargain at $35.50:

1. Eli Lilly has an AA- rated balance sheet and yields almost 5.5%.The dividend should put a floor under the stock.

2. LLY has technical support in the $34 area (See Chart).

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3. The stock is selling at the very bottom of its five year valuation range based on P/E, P/S, P/B and P/CF.

4. LLY sells at less than 6 times operating cash flow and under 9 times earnings, which is a 40% discount to its five year average.

Covidien (COV) :

Covidien Public Limited Company develops, manufactures, and sells healthcare products for use in clinical and home settings in the United States and internationally. (Business description from Yahoo Finance)

4 reasons COV is a good buy at $43:

1. It has solid technical support at this price level (See Chart).

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2. The stock is selling at the very bottom of its five year valuation range based on P/E, P/B and P/CF.

3. The company has consistently beat earnings estimates the last six quarters.In the last year, the company has beat earnings estimates by an average of 8%, yields a solid 2% and is priced at just over 9 times forward earnings.

4. Covidien is selling at under analysts’ price targets.It is a five star pick with a $64 price target over at S&P.The median analysts’ price target on COV is $58.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in COV over the next 72 hours.