This market hates blue-chip growth stocks, the kind that long-term, buy-and-hold investors use for the core of their portfolios. Over the last one-month and three-month periods, stocks such as

American International Group

(AIG) - Get Report

,

Pepsi

(PEP) - Get Report

and

Avon Products

(AVP) - Get Report

have badly lagged the technology rockets powering the

Nasdaq

. And this relative underperformance could well continue for the next three months.

That's why this is a good time for patient long-term investors to start, or add to, positions in these portfolio cornerstones.

Right now is the time to accumulate shares of AIG, Avon,

Microsoft

(MSFT) - Get Report

, Pepsi and

Pfizer

(PFE) - Get Report

.

Why Now?

What has created the buying opportunity in blue-chip growth stocks? The amazing rally in technology and other high-volatility sectors such as biotechnology since the March 11 bottom in the indices. Who wants the safe haven of a PepsiCo's steady growth when a

PMC-Sierra

(PMCS)

is racing ahead by 133% in just six months, an

Ameritrade

(AMTD) - Get Report

is climbing 180% and a

Genentech

(DNA)

is rising 152%.

The treatment of safe-stock names hasn't gotten any better in recent weeks, either. In the last three months, the Nasdaq Composite is up 13%; in the last month alone, the index has risen 9%. In the meantime, look at the performance of these five blue-chip growth stocks:

Only Microsoft matches the returns on the Nasdaq Composite for the period -- and only, I'd argue, because the stock lagged so far behind the rest of the technology sector in the early stages of the rally. From March 11 through June 11, while the Nasdaq Composite moved up 29%, Microsoft managed just a 9% gain.

If, after a choppy period in late September and early October, the stock market resumes a strong rally led by the highly volatile, high-beta stocks that have led the rally of the last six months (and I think this is the most likely scenario as we close out the year), then the safe, reliable growth of these blue-chips will continue to be undervalued by investors, and the stocks will remain out of favor and underperform.

The fear factor on Wall Street is barely visible on the radar screen. But I don't expect this period of near-record-low fear to go on indefinitely. The Chicago Board Options Exchange Volatility Index, or VIX, closed at 20.25 on Friday, Sept. 12. (The VIX measures the premium that investors are willing to pay to buy options to hedge against a fall in the market. The greater the fear of such a decline, the higher the premium.)

That's not far above the 18.79 low in August, a three-year low for the fear index, and well below the 40.10 open for the VIX on March 12, just as this rally began. The 52-week high on the VIX is 50.48.

Any uptick in fear will make the reliability of earnings growth at companies such as these more valuable to investors. And that will drive up the multiple that investors are willing to pay for the earnings growth of a Pepsi or a Pfizer.

Stocks at a Sweet Spot

Is there anything wrong with these stocks that a shift in investor sentiment wouldn't cure? I don't think so. In fact, these stocks are in many cases the best ways to play long-term trends that are set to dominate the economy over the next decade.

For example, everything is clicking at Avon Products right now. The company's pipeline looks particularly strong with the recent launch of Mark, a new product line targeting young women, and the company's huge direct sales force gives the company a decided edge in the U.S., where a national Do Not Call registry is set to produce turmoil in the telemarketing business when it kicks in this year.

In China, Avon's reps give the company a unique tool for penetrating that market. Sales climbed 8% in the second quarter, and Avon should be able to generate 5% annual sales growth over the next five years. That's up from a 4% annual average over the last five-year period. In addition, Avon's expansion in China makes the stock an ideal way to play growth in that fast-growing market.

AIG is at a similar sweet spot in the cycle right now. In the first half of 2003, return on equity climbed to 17%, well above the company's very healthy 13% average over the last five years. The company's AAA credit rating and strong cash flow give it an extraordinarily low cost of capital. Combined with expected increases in premiums in the company's general insurance business for the rest of 2003, that financial stability should enable AIG to post solid and improving gains on its investments as interest rates rise.

And like Avon, AIG is one of the best ways for U.S. investors to put money into the growth of the middle class in China, India and other parts of Asia. The company is the first foreign insurer to have wholly owned life insurance operations in Beijing, Shanghai, Guangzhou, Shenzhen, Suzhou, Dongguan, Foshan and Jiangmen.

(As an aside, the company does not make my list of clean stocks. It recently agreed to pay a $10 million fine to settle a fraud charge leveled against it by the

Securities and Exchange Commission

. The SEC accused the company of trying to help

Brightpoint

(CELL)

artificially smooth its earnings reports, and of attempting to thwart investigators when it became clear its practices were being examined. Only invest in American International if you think findings like that are minor problems at an otherwise aggressive but well-managed company.)

The Right Entry Points

So how much of a buying opportunity do these stocks present at current prices?

PepsiCo and Pfizer are at load-up-the-truck prices right now. My target price for Pfizer is $42 a share, about 30% above recent prices. My target for PepsiCo is $53, about 20% above recent levels.

I'd be comfortable beginning positions in AIG and Avon Products at current levels, but I'd hope to be able to add to those positions at lower prices if we see a continuation of the recent technology-led rally. AIG is a bargain anytime it falls below $59, and I'd be looking to pick up Avon Products at $58 or better.

Microsoft is a special case in this group. Even though it is a technology stock, it lagged the technology sector for the first half of the rally and only began to match the performance of the index in the latter part of the rally. I'd certainly buy the stock at current prices (please remember that I work for the company, and do your own due diligence, as always, on any stock I mention), and I'd be willing to purchase up to about $31 a share.

Jubak's Picks Update: Sell Tom Brown

I simply think there are better opportunities in the energy and basic materials sectors right now, and I'm selling my position in

Tom Brown

(TBI) - Get Report

to free up cash to make those buys in the next couple of weeks. Wall Street analysts have cut their third-quarter estimates from 47 cents a share to 44 cents a share in the last month, and for all of 2003 from $2.14 to $2.10 in the last seven days. The stock is down 9% in the last three months. I'm selling this position with a 5% loss since I added it to Jubak's Picks on May 31, 2002.

At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: American International Group, Microsoft, Pepsi and Pfizer. He does not own short positions in any stock mentioned in this column.