by Scott Rubin, Benzinga

Don’t look now, but the stock market is in rally mode and investors have good reason to smile after the roughly 90 point jump in the S&P 500 to begin 2012. Despite the optimism and bullish sentiment, however, many of the world’s top investors continue to warn of extreme risks in the capital markets. The most notable of these is George Soros, but I can think of at least a half a dozen elite hedge fund managers off the top of my head that have been making similar pronouncements.

The fact remains, however, that the markets are moving up and some optimism about the global economy appears justified. In such an environment, how should conservative investors position themselves to take advantage of a cyclical upturn while at the same time managing risk and preserving capital in case of a volatility spike? In order to achieve these goals, prudent investors should focus on high-quality, high yielding, large cap names that are trading at reasonable valuations. The following three stocks all fit this bill and would make sense in a conservative investment portfolio.

AT&T (NYSE: T) - This stock possesses a number of qualities that make it appealing to investors focused on capital preservation. First, AT&T is a very large company with stable and consistent lines of business. It may not be a high-flier, but you are unlikely to lose your shirt in this stock. AT&T shares currently trade at roughly $30 and are up around 8% over the last year.

During the last 5 years, T has bounced around between $40 and the low $20 level, which occurred during the heart of the financial crisis. The last time that AT&T traded below $20, however, was back in 1994! As far as stocks go, your investment capital is quite safe in AT&T, which allows investors to blissfully collect those fat dividend checks every quarter!

Currently, T is yielding around 5.90% annually, which looks like a steal compared to a 10-Year Note yield of under 2%. The shares trade at a forward P/E of 11.83, and the hope for investors is that the market will assign the stock a slightly higher multiple if the macro environment improves. Three adjectives that describe this stock are high-quality, high-yielding, and low-volatility – not a bad combination for the conservative investor.

AstraZeneca (NYSE: AZN) - This is another high-quality name which pays out a big dividend and enjoys a relative lack of volatility. In fact, going back to 1997, AZN has traded in a range between $30.00 and $50.00 for all but a brief period in 2006 when the stock spiked to a high of $66.00. While investors have not gotten rich off of capital gains in AZN during this time, they have done quite nicely collecting dividends.

At current levels, the stock yields 5.85%. Valuation is dirt cheap in AZN, which trades at a forward P/E multiple of 7.61. While revenue growth over the last 5 years has been very modest, the company’s margins and net income have been consistently rising.

A quick perusal of AstraZeneca’s financials and chart pattern suggests that if the company can boost its top line growth metrics in the future, the stock price could really take off as it has been basing and consolidating for 15 years! In any event, based on the company’s large-cap status in the global pharmaceutical sector, consistent business lines, and the stock’s high dividend yield, AZN makes sense for conservative investors looking to allocate capital into the market.

Altria Group (NYSE: MO) - Cigarette smoking may be an unhealthy vice, but the business of manufacturing and marketing cigarettes has been damn lucrative for investors. Altria, which owns Phillip Morris, has seen its stock price jump 150% over the last decade, including 19.6% during the last 52-weeks. While those returns are nice, they are only half the story with MO. This is because the company has consistently paid out AND increased its dividend.

In fact, according to Altria investor relations, the company has increased its dividend 45 times in the last 43 years! Simply put, this is one tremendous dividend stock. Not surprisingly, MO shares have outperformed the S&P 500 every year since 2000 on a total shareholder return basis. Given improving market sentiment and a strong uptrend in tobacco stocks, Altria is a name that could continue to reward investors in the coming years.

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