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Go Defensive With These Blue-Chip Icons

Bret Jensen

As the end of April approaches, market volatility is increasing and feels eerily like 2010 and 2011 all over again. In both of these years, the market swooned after promising starts to the year due to problems in Europe. Unlike in previous years, the turmoil will not come from Greece, but more likely from Spain, where conditions are rapidly deteriorating. Spain's problems are likely to have negative consequences for the global economy and the markets, as laid out by Robert Samuelson in a recent article.

Given the uncertainty swirling around the margins, investors should take a more cautious tack over the next few months. Companies with fortress-like balance sheets, dependable earnings streams, reasonable valuations and solid dividends should be strongly considered. Here are three blue-chip American Icons that make the grade.

Microsoft MSFT : Microsoft was the strongest performer in the Dow Jones Industrial Average on Friday as it beat earnings and revenue expectations on its first-quarter earnings report.

Microsoft offers solid value at $32 a share. It has an AAA credit rating and provides a 2.5% yield; the company has doubled its dividend payout in the last five years. Given its steadily rising earnings and cash flow, I would look for this dividend growth to continue. Revenue and earnings are also set to accelerate in fiscal 2013 on the release of Windows 8. The stock is selling at just 9x operating cash flow and just 10.5x forward earnings, below its historical average. Consensus estimates for FY2012 and FY2013 have also risen in last two months.

Credit Suisse just bumped its price target to $38 from $34 before the last earnings report and has an "outperform" rating on the stock. I would look for other analysts to also raise their price targets on MSFT in the coming weeks.

Pfizer PFE : Pfizer announced Monday that it sold its infant nutrition business to Nestle for almost $12 billion. This will allow the company to focus more on its core pharmaceutical business. It will also provide Pfizer with a cash hoard it can use to increase its dividend, repurchase shares or make a strategic biotech acquisition.

Pfizer is compelling for valuation and income investors at $22 a share. It has an AA rating balance sheet and yields a solid 3.9%. It also raised its dividend payment by 10% in February.

The company has beats earnings expectations for six straight quarters, beating consensus over that span by an average of 5%. The stock is reasonably priced at 8.5x operating cash flow and 9.5x forward earnings, and it should hold up well if the market does experience higher volatility, as it is in a defensive sector and has a low beta (0.61).

ConocoPhillips COP : ConocoPhillips is splitting off its refining and marketing business into a separate company. Shareholders will get one share of this new equity (PSX) for every two shares of COP they hold. This new entity will also be part of the S&P 500, replacing Supervalu SVU .

The company has an A-rated balance sheet, yields 3.6% and the dividend should be raised again soon. At $72 a share, the stock is cheap at under 8x forward earnings and 5x operating cash flow. The company has said it will repurchase $10 billion in shares in 2012, and operating cash flow grew more than 50% from fiscal 2009 to fiscal 2011.

The median analyst's price target for the 14 analysts who cover the stock is $83. Standard & Poor's has a Buy rating and a price target of $90 on the stock.