Drug stocks appear to be just what this market craves. The reason? Drug companies' dependable earnings stream and dividend payments make their stocks attractive to investors looking for safety and yield.
One reason why drug stocks have become even more attractive in the near term are record low yields on all maturities of U.S Treasuries. The low yield in Treasuries forces big money such as pension funds to look elsewhere for returns to meet their investment goals. This search for yield has led a steady stream of buyers into many high quality healthcare names.
Furthermore, healthcare stocks are among the most immune to a European banking collapse. If Europe collapses, it will almost certainly mean trouble for the global economy. Cyclical companies that appear to have high yields would likely be forced to cut their dividends if trouble in Europe continues. In the case of healthcare stocks, these companies would actually most likely be in a position to continue paying their dividends.
The main negative for healthcare stocks would be some sort of massive reduction in government health insurance programs Medicare and Medicaid. However, it seems as though democrats are willing to stand firmly behind Medicare and Medicaid at the moment. This could all change with the election in 2012, but it is doubtful that any politician will be elected on the premise of massively cutting Medicare or Medicaid. It is possible that some changes will take effect, but these changes will do little to damage the steady business of healthcare.
Some healthcare stocks with good yields to consider:
Merck (NYSE:MRK) - 4.71%
Pfizer (NYSE:PFE)- 3.89%
Eli Lilly (NYSE:LLY)- 5.00%
Brystol-Myers Squibb (NYSE:BMY)- 3.94%
Abbott Labs (NYSE:ABT)- 3.52%
Novartis (NYSE:NVS)- 4.29%
Sanofi-Aventis (NYSE:SNY) - 4.96%
Johnson & Johnson (NYSE:JNJ) -3.53%
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.