NEW YORK (CNNMoney.com) -- The stock market continues to be choppy, as investors worry about inflation and the likelihood of future interest-rate hikes by the Federal Reserve.

Moreover, investor confidence is deteriorating. Although earnings forecasts are being revised upwards, on balance, the S&P 500 is flat and the Nasdaq is down almost 5 percent since January.

Until the outlook clarifies, the stock market is likely to remain highly volatile.

As a result, investors should be sure that they are well diversified -- and that their portfolios contain some defensive stocks. The classic choice would be Procter & Gamble.

The company's extensive array of soaps and personal-care products is a diverse mix of stable brands. People don't stop washing their hair just because the economy turns sluggish.

As well as Tide, Crest and Head & Shoulders, P&G's brands include Pampers, Pringles and Gillette.

The company is also financially strong, with $10 billion of cash on hand and more than $10 billion of cash flow each year.

And as I mentioned last week, P&G is one of the stocks with the longest histories of dividend increases. In fact, the company has raised dividends for 50 years in a row.

Several analysts and stock pickers have upped their ratings on P&G recently, as a defensive choice that has dipped in price to an attractive buying level.

In fact, the share price is down more than 12 percent from its March high, largely because reported results have seemed underwhelming.

But those reports are to some extent misleading. P&G (Charts) completed its acquisition of Gillette late last year. And the merger has been a short-term drag on the bottom line because of dilution from additional shares.

For the third fiscal quarter ended March 31, total profit was up 37 percent, but earnings per share were up only 7 percent. That dilution will continue to hurt results in the current quarter and into the new fiscal year that begins in July, though the impact will be less pronounced.

At the time the acquisition was announced, some analysts felt that P&G overpaid and that the merger would take too long to become a contributor to the bottom line.

Whether that's true or not, Gillette should begin making a positive earnings contribution during the 2007-08 fiscal year. And ultimately, the merger should allow for roughly a billion dollars of pre-tax cost savings a year.

P&G is rarely a cheap stock. And the recent dip brings the shares down to an attractive level just at a time when many investors need more solid choices in their stock portfolios.

At $54.87, P&G is trading at 18.4 times estimated earnings for the fiscal year that begins next month. Compound annual earnings growth over the next five years is projected at about 11 percent.

Moreover, earnings gains should accelerate as the Gillette acquisition is absorbed. Combined with P&G's 2.3 percent yield, the stock figures to offer an above-average return. That's a way to invest for growth and be defensive at the same time.

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