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If the delinquency problems in the sub prime sector continue to spread into higher rated debt securities and/or prompt the re-pricing of debt (risk) in other credit sectors, we should all be paying more attention to the risks in the stocks that we do own (and therefore what we should be selling) than worrying about new buy ideas.

Certainly with respect to any financial stocks that we own, we have to either be absolutely convinced of the balance sheet strength of the underlying financial institution or sell them. Furthermore, in our opinion, the current valuation of many raw material and industrial stocks suggests considerable downside risk if the difficulties in the credit markets were result in some serious equity market whackage.

On the other hand, revenues and profits of large cap consumer staple companies tend to be relatively immune to cyclical economic forces; and certainly their stocks have lagged the Market for some time. So for investors who are getting nervous but either already have a sufficiently large cash position or want to stay relatively fully invested, they should consider owning three stocks of high quality companies which we recently added to our Dividend Growth Buy List.

These companies all have international exposure so they will benefit from the weak dollar as well as the global economic boom; and if deteriorating credit problems continue, earnings for these companies should be relatively safe from any negative surprises. They are:

Abbott Laboratories (NYSE:ABT) is a manufacturer of drugs, diagnostic tests, intravenous solutions, laboratory and hospital instruments, prepared infant formulas and nutritional products. The company has several new drugs in its pipeline which should allow it to continue its historical 10-11% annual earnings and dividend growth. Abbott earns 25% return on equity and has a debt to equity ratio of only 21%.

EPS: 2006 $2.62, 2007 $2.82, 2008 $3.20
DVD: $1.30
YLD 2.3%

ABT 1-yr chart

ABT

Clorox (NYSE:CLX) is a producer of household products which include Clorox bleach, Formula 409, Tilex, Pine-Sol, Brita, Glad, Kingsford (charcoal), Match Light, Fresh Step, Scoop Away (kitty litter), Armor All, STP, K.C. Masterpiece and Hidden Valley. The company has a great record of earnings (12%) and dividend (9%) growth achieved by acquisition as well as internal product development. While Clorox has faced rising commodities in the recent past, it has been able to raise its products’ prices to compensate. The company has a 30%+ return of equity which has been aided by an aggressive stock buy back program.

EPS: 2006 $2.89, 2007 $3.25, 2008 $3.60
DVD: $1.31
YLD 2.6%

CLX 1-yr chart

CLX

Proctor & Gamble (NYSE:PG) makes detergents, toiletries, foods, paper and industrial products which include Tide, Swifter, Cascade, Febreze, Dash, Cheer, Bounce, Pantene, Olay, Head & Shoulders, Herbal Essences, Secret, Prilosec, Sure, Always, Tampax, Pampers, Luvs, Charmin, Bounty, Crest, Iams, Actonel, Pringles and Folgers. The company has an outstanding return on equity ranging between 35-40% over the last fifteen years; though it has utilized more leverage than we like to see-27%. PG has grown its earnings and dividends 10-11% consistently over the last ten years. We believe that it can continue to grow sales, earnings and dividends by adding new products through development or acquisition and leveraging its fixed costs through higher unit sales. EPS: 2006 $2.64, 2007 $3.02, 2008 $3.45; DVD: $1.41, YLD 2.3%

PG 1-yr chart

PG

Disclosure: Author holds positions in the above-mentioned companies.

Source: Three Safer Stocks For This Shaky Market