Prescription for the Dow?

We know they can tumble. We've seen the carnage. We're afraid even to peek at our 401(k) statements. Despite last week's rally, the NASDAQ is still down more than 60% from its all-time high and off 14.4% this year. Slowing profits, lack of visibility beyond the next few months, and sympathy selling have scratched once Teflon-tough technology stocks like Cisco, Oracle and Intel. They're so cheap now, you can buy a dozen shares of each for less than the price of a laptop.

Yet even so-called defensive stocks like consumer staples have suffered in the market's tremendous slide. So how can investors balance out a tech-wrecked portfolio?

Here's one prescription: Up your dosage of drug stocks. No matter how bad the economy gets, consumers aren't likely to cut spending on drugs and medical care. In fact, as debts rise and losses mount, they may be racing to buy more Prozac (Eli Lilly). These stocks aren't immune to the broader market's misfortune. The American Stock Exchange Pharmaceutical Index has fallen 12.8% since Jan. 2, while Standard & Poor's 500 is down 8.4%. But drug stocks offer something that has been scarce in this environment--profit growth.

This week the major pharmaceutical companies are expected to report strong first-quarter earnings. (There will be real pain if they don't.) While S&P;'s earnings are anticipated to be off nearly 9% for the first quarter, drug companies' profits are forecast to increase more than 12%, according to researchers at First Call/Thomson Financial. The sector's bottom-line growth should accelerate to 14% for the year; the overall S&P; will barely break even.

Health care faces fewer competitive pressures than virtually any other sector, says Morgan Stanley U.S. equity strategist Steve Galbraith. "The health-care industry does not face the risk of two guys in a garage coming up with a Netscape-like technology that suddenly reshapes the entire industry," he wrote recently.

Galbraith says the opportunities are pretty widespread, but Bristol Myers Squibb and American Home Products are his favorites. Drug analyst Barbara Ryan of Deutsche Banc Alex. Brown concurs: she says estimates for Bristol's earnings are too low--she's penciling in 13% or 14% annually over the next three years. And now that the fen-phen fiasco is behind American Home, she says, the company can concentrate on drugs like Enbrel for rheumatoid arthritis.

The consensus among drug analysts is that Pfizer will report the highest profit growth for the quarter, up 24% over the same period a year ago. "It's the best of all the drug companies," says portfolio manager David Alger, who owns about $300 million worth of Pfizer in his funds. Merrill Lynch analyst Steve Tighe is high on the new products coming from Pharmacia, which has partnered with Pfizer to launch a new anti-arthritis drug. And he says Elan is attractive since it trades at a discount to large cap and specialty-drug stocks.

So if you're tired of the endless downers from technology companies, the drug sector should offer healthy results. Adding some to your portfolio could be just what the portfolio doctor ordered.

Sharon Epperson is a correspondent for CNBC Business News. You can e-mail her at sharon.epperson@NBC.com .