As the calendar turns toward the second quarter of the year, it’s again time to revisit the popular investing adage, “Sell in May and go away.” As the theory stipulates, investors should get rid of their stocks and head for the safety of cash, so as to avoid the market’s seemingly inevitable spring swoon.
Over the past few years, the theory held true. In May 2010, the S&P 500 Index lost 4% during the month. Similar declines, of 3% and 6%, occurred in May 2011 and May 2012, respectively. This pattern has only added fuel to the fire of what is, in truth, a seriously flawed idea.
Don’t sell these stocks in May (or any other month)
Of course, even though the month of May has happened to be a poor one for the market, that doesn’t mean that stocks are an automatic sell once the calendar hits the fifth month. If investing were really that easy, we’d all be millionaires. Remember that correlation doesn’t necessarily mean causation.
The truth is that the declines seen in May over the past few years belie what has been a remarkable rally since the Great Recession. No matter the month, the market offers some of America’s best, most profitable blue chips stocks that should be bought and held.
Three Dow components to buck the trend
Fast food giant McDonald’s Corporation (NYSE:MCD) carries a spectacular business that rewards investors every month of the year. The company reported great full-year 2012 results, as global comparable sales increased 3.1%, and consolidated revenues climbed 5% on a constant currency basis. Diluted earnings per share increased 5% as well on a constant currency basis to $5.36 per share.
Furthermore, the company’s future is bright. McDonald’s Corporation (NYSE:MCD) has set ambitious goals for international expansion. McDonald’s Corporation (NYSE:MCD) is executing on its plan to open 225 to 250 new restaurants every year in China until it reaches its stated goal of 2,000 restaurants there by the end of this year.
Technology giant Cisco Systems, Inc. (NASDAQ:CSCO) recently provided investors with an impressive 21% dividend increase, reflecting management’s strong belief in the company’s future. The company has increased its payout three times since instituting its dividend program in 2011.
Moreover, Cisco Systems, Inc. (NASDAQ:CSCO) trades for an attractive valuation well below that of the broader market, exchanging hands for 12 times trailing earnings versus the trailing P/E ratio on the S&P 500 that is in the mid-teens.
Last but not least, health care mega-cap Johnson & Johnson (NYSE:JNJ) is a $215 billion company with a diversified business line of medical devices, pharmaceutical medicines, and consumer products. It has a wide variety of well-known consumer products including Band-Aids and Listerine.
The company reported solid full-year 2012 results. Revenue increased more than 3% year over year, and diluted earnings per share clocked in at $3.86, representing an increase of more than 10% versus the prior year. In April 2012, Johnson & Johnson (NYSE:JNJ) provided investors with a 7% dividend increase to its current level of $2.44 per share. Amazingly, this marked the 50th consecutive year of a dividend increase.
Don’t be foolish, be Foolish instead
Investors interested not in flipping stocks for quick gains, but rather in building wealth over the long term, likely realize the foolishness of the “sell in May and go away” adage. Timing the market for any period of time is rarely a wise idea. Unfortunately, none of us has the ability to see the future, despite what we’d all like to believe.
Betting on the direction the market will take is a coin-flip proposition. If fifty-fifty is the best hope an investor can dream of, they might as well take their cash to the roulette table at the local casino and put it all on red.
Stocks such as the ones here have proven track records of producing increasing sales and profits over time. In addition, they consistently reward investors with generous dividend yields, a slow-and-steady way of building sustainable wealth over long periods of time.
Advice that calls for investors to hurriedly sell their stocks for one month should not be taken seriously by anybody. Investors interested in successfully planning for their financial futures should continue to invest in companies such as McDonald’s Corporation (NYSE:MCD), Cisco Systems, Inc. (NASDAQ:CSCO), and Johnson & Johnson (NYSE:JNJ), that comprise some of America’s best stocks.
The article Should You Sell in May and Go Away? originally appeared on Fool.com and is written by Robert Ciura.
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