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Why good investors are now buying stocks

Since early May, investors entering the local stock market have been hammered despite buying good companies, but that’s about to change.

The S&P/ASX 200 (ASX: XJO)(^AXJO) has taken a beating in the past month and it seems this time of year it always happens on stock exchanges throughout the world, so much so, that it’s coined the term “sell in May and go away”. Stocks are still above their pre-2013 prices, but only just. They can be seen as now trading closer to fair value, with many of Australia’s biggest companies falling from record highs in a very short period. Falling prices will allow many astute investors to begin buying solid shares for a discounted price.

The top 20

The recent dividend rush has put good quality blue chips in the firing line, spurred on by low interest rates in term deposits. Telstra (ASX: TLS), CBA (ASX: CBA), NAB (ASX: NAB) and Westpac (ASX: WBC) are all down over 9% in the past month alone and offer a dividend of over 5.3% fully franked. With interest rates set to fall even further in coming months, maybe now is the time to re-enter the market.

The up and comers

In the recent past, blue chips have not been the only stocks to be sold down; small and medium companies have felt the pinch just as hard. IMF (ASX: IMF), Seek (ASX: SEK) and Codan (ASX: CDA) have been no exception to the rule but pay good dividends that should appeal to income investors and have a huge long term upside.

Foolish takeaway

Historically, the best time to invest has been when it seems the only way stocks are heading is down. Investing and making huge profits is tough work, but with a firm view on the horizon, buying good quality companies will get you on your way. Times like this give savvy investors a great opportunity to buy some of those unloved treasures. Warren Buffett has made mountains of money from purchasing quality companies when others have sold them out of fear, perhaps now it’s your turn.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

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Motley Fool contributor Owen Raszkiewicz owns shares in Codan and IMF.

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