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Sell In May… Or Buy Vodafone Group plc, BHP Billiton plc And SSE PLC?

The stock market saying “Sell in May and go away; buy again on Leger Day” harks back to the days when the entire City was more concerned with the summer season’s round of sporting and social events than with trading shares.

Some studies purport to show a persistent underperformance by markets during the summer months. So, why not sell your shares ahead of the lull and buy again after the season’s last Classic horserace — the St Leger — in mid-September?

For one thing, the theory doesn’t always work; and, for another, some individual stocks will soar, even when the market as a whole is directionless. In fact, the only 100% certainty about selling in May and re-buying in September is that you’ll rack up trading costs, which can be one of the biggest drags on long-term investment returns. You’ll also almost certainly miss out on some dividends, which, conversely, are a major contributor to long-term returns.

Here’s why it could pay to buy — rather than sell — FTSE 100 firms Vodafone (LSE: VOD) (NASDAQ: VOD.US), BHP Billiton (LSE: BLT) (NYSE: BBL.US) and SSE (LSE: SSE).

Vodafone

Vodafone’s current earnings have been vastly reduced, following the $130bn sale of its stake in US company Verizon Wireless early last year. Vodafone is set to post earnings per share of 6.5p for the year ended 31 March 2015 when it announces its results on 19 May — down from 17.5p last year. That puts the company on a sky-high price-to-earnings (P/E) ratio of 34.5.

Earnings aren’t expected to improve much in the next couple of years, as Vodafone invests heavily for the future. But long term, that investment and an economic recovery in Europe — where Vodafone has been hurt in recent years — could reward faithful shareholders. In the short term, if you “sell in May”, you’ll miss out on the company’s final dividend for this financial year. Analysts are expecting a payout of 7.9p — a yield of 3.5%; or, put another way, the equivalent of 35 free shares for every 1,000 you own.

BHP Billiton

The shares of mining companies haven’t really done much for three or four years except drift lower in the face of weak metals prices. Selling now and buying back later might seem like a good idea, but share prices can often turn before industry fundamentals say they should. While BHP Billiton’s current-year forecast P/E of 14 isn’t particularly cheap, miners’ P/Es can be pushed much higher than that very quickly when the market starts to anticipate an upswing in the earnings cycle.

As with Vodafone, if you sell BHP Billiton in May, you’ll miss out on the final dividend (Billiton has a 30 June financial year end). The miner’s annual payout is split more equally between interim and final than Vodafone’s, and the yield on Billiton’s final will probably be around 2.8%. In addition, though, Billiton is looking to enhance shareholder value by demerging part of its business, with shareholders automatically being entitled to free shares in the spin-out company South32. If you’ve gone away and don’t come back until Ledger Day, you’ll have missed your free shares in South32 (or the opportunity to cash them in).

SSE

SSE — one of the UK’s “Big Six” energy firms — was out of favour with the market at the backend of last year, as investors fretted about threats of political interference in the energy market from Ed Miliband if Labour wins the upcoming General Election. However, the shares have recovered lately, and could rally further if Labour fails to get into power. Anyone selling their SSE shares today, hoping to buy back cheaper in September may be disappointed.

They’ll certainly miss out on what should be one of the best final dividends declared this summer. SSE’s expected final would give buyers of the shares today entitlement to a yield return of 4.1% long before the St Leger comes around.

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G A Chester has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.