3 Stocks Defending the Dow

Health care and homebuilders finished in the green.

Dave Williamson
Dave Williamson
Sep 25, 2012 at 12:00AM

Excellent housing data that had markets up early wasn't enough to save the Dow Jones Industrial Average (INDEX: ^DJI) from a 101-point drop after lunch, once comments from a Federal Reserve president doubting the ability of QE3 to "benefit growth or unemployment" got around.

So wait -- because one of the Fed's presidents disagreed with open-ended quantitative easing, we disregarded actual economic data of a housing recovery that should help fuel the overall economy? I know the market is addicted to QE, but today screams of a classic overreaction and a reminder not to get too caught up in the daily movements of the broader market.

On the Dow, it wasn't surprising to see among our top performers three of the four representatives of the health-care sector. Health care is generally seen as defensive -- you generally won't get market-beating returns when times are good, but it will help shield you during troubled days. And the four health-care stocks on the Dow are among the industry's most defensive.

Johnson & Johnson (NYSE: JNJ), which won a patent lawsuit regarding a psoriasis drug, gained 0.5% while fellow Big Pharma member Pfizer (NYSE: PFE) added 0.4% to its shares on no news. Finally, the newest component and largest publically traded managed-care company, UnitedHealth Group (NYSE: UNH), also saw a 0.4% increase. With insurance premiums seeing double-digit increases for Medicare enrollees, United will be offering a new low-cost plan that significantly undercuts the current low-cost leader, Humana. United should see enrollment increases as a seniors, surprised by their premium increases, begin to shop around.

However, today's biggest Dow winner was Home Depot, which gained 0.6% on its way to claiming a new 52-week high of $60.58 per share. Housing is making a recovery, and Home Depot is poised to profit. Unfortunately, it doesn't look like this recovery will return us to the go-go "buy and flip" housing days or that underwater homeowners will have a chance to gasp air, although prices have started to rise. Housing inventory is unsustainably low, and homebuilders need to get busy just to keep up with basic demand.

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