By Robert Hauver
Looking to play defense in the market? As the market has vacillated between up and down months since July, income investors are seeking dividend paying stocks with less correlation-i.e., dividend stocks which are defensive during pullbacks, but still share in rallies. It has become more challenging to find such an animal, but they are out there. However, defensive stocks aren’t always the best stocks to buy for growth. These two giant Healthcare dividend stocks, Lilly and Pfizer, have both outperformed the S&P in 2011, in both up and down markets:
Performance-wise, LLY and PFE flip-flopped in the Sept. and Nov. pullbacks and the Oct. rally. Lilly just got a nice boost recently, after an analyst said that LLY’s anti-Alzheimer drug could double the share price, if proven to be effective, which he thought it had a 10-20% chance of.
Financials: Lilly’ metrics outshine Pfizer’s, and also its Big Pharma peers.
Options: The put and call options trades listed in this article expire in April for LLY, and March for PFE.
Covered Calls: Although Lilly and Pfizer’s don’t have high option yields when compared to other stocks we’ve covered recently, such as CAT or CMI, both of the options trading strategies listed here give you a chance to significantly improve upon these stocks’ dividend yields over this 4-5 month period.
(You can find more details on these and more than 30 high yield covered calls in our Covered Calls Table.)
Cash Secured Puts: LLY’s put options offer more yield than PFE’s. Since PFE and LLY have made 17% to 20%-plus gains year-to-date, selling cash secured puts below the current stock prices might be the most conservative approach you could take in potentially accumulating shares. (Note: Put sellers don’t receive dividends.)
(There are more details on these and over 30 high yield options trades in our Cash Secured Puts Table.)
EPS/Valuations: Due to issues with patent expirations, the future sales forecasts are sub-par for LLY and nearly flat for PFE. As we mentioned earlier though, there’s a trade-off between growth and defense in these stocks.
Disclosure: Author has no positions in LLY or PFE at the time of publication.
Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.
Author: Robert Hauver © 2011 Demar Marketing All Rights Reserved