It's Time to Buy, Not Go Away

05/24/2010 1:00 pm EST

Focus: STOCKS

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

Louis Navellier, editor of Blue Chip Growth, says “sell in May and go away” hasn’t worked recently, and he likes dividend-paying stocks to reduce risk.

Without doubt, the month of May has given us one wild ride. It's enough to make many investors bring up the old adage "Sell in May and go away."  Well, not so fast, I say.

We can't let May slip away without discussing one of the most widely repeated market myths, "Sell in May and Go Away.” This old-school strategy still is respected by a few well-known investors, given its record of working well from 1950 until about 2003. But from 1933 to 2009, the Standard & Poor’s 500 index gained 2.5%, on average, during the months of May through October.

Look at the 15 years that most resembled 2010—the second year of a bull market—and the May-to-October gains in all 15 of those instances (since 1933) averaged 5.5%! Only once (in 1971), did the May-to-October months deliver a major loss.

Last year, "sell in May" certainly didn't work, since the S&P 500 gained 18.7% from May 1, 2009 to Oct. 31, 2009, and it added another 14.5% in the six months ending April 30, 2010. So you might be wondering, then, what about the next six months?

The real meat of the stock market is corporate earnings and consumer spending. With the first-quarter earnings season now nearly 70% complete, the 343 S&P 500 companies that have reported have announced earnings 16% above analysts' forecasts and 65.4% higher than a year ago. Almost 80% of all reporting companies announced higher year-over-year revenue and 79% posted a positive earnings surprise.

There is a case to be made for having a balanced portfolio of big blue [chips] that pay dividends and those that reinvest in their companies. Diversifying in dividend stocks is a great way to maximize your returns in a choppy market. Twelve of our 24 Buy List stocks have dividends.

Denmark's Novo Nordisk A/S (NYSE: NVO) yields a 1.3% dividend. NVO is an excellently run large pharmaceutical manufacturer. It is one of the world's leading producers of insulin, used to treat diabetes.

And as populations around the world continue to gain weight, diabetes rates are skyrocketing—sadly—even among children. According to a recent study, if current trends continue, cases of type 1 diabetes among European children younger than 15 will increase 70% by 2020. This company also makes insulin injection devices and diabetes education materials.

The company's first-quarter net income rose 23% to $593 million. Its sales rose 9% to $2.47 billion. NVO expects year-end sales growth of between 7% and 10%, up from its previous guidance of between 6% and 10%. For 2010, the company is expecting conservative growth in its operating earnings [above] 10%. However, [analysts expect] 2010 earnings to rise 20.2%.

I recommend you add shares of this high-quality stock to your balanced portfolio of blue-chip stocks. (It closed above $75 Friday—Editor.)

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