Consider buying these nine companies.
There are many things to consider when first getting into the stock market. Should you buy individual stocks or funds that hold many companies? While exchange-traded funds and mutual funds should probably form at least part of the best stock portfolios, they may not quite provide the same excitement of finding a company you believe in and putting skin in the game. Of course, buying individual stocks means taking on more risk than with diversified funds. If you’re wondering what the best stocks for beginners are, you may want to consider larger companies with long track records, solid fundamentals and strong balance sheets. Of course, you’ll also want to pay attention to valuation metrics like a company’s price-earnings ratio, but sometimes stocks are expensive for a reason. Here are nine stocks to consider for a starter portfolio.
Amazon.com (ticker: AMZN)
Amazon has come a long way since its origins as an online bookseller in the 1990s. Its segments now include Amazon Web Services, Whole Foods Market, Amazon Fresh and Prime Video, which includes original content and has allowed the company to compete in the entertainment streaming wars. And of course, Amazon’s core e-commerce business, including online book sales, has been a game-changer for consumers and retail outlets. Along with its Web services division, its e-commerce arm has helped the company’s shares more than recover from the market downturn at the beginning of the pandemic. With a P/E ratio of more than 90, the stock isn’t cheap. That said, for investors willing to buy on the dips, it seems the stock could be a solid choice for a buy-and-hold portfolio.
Year-to-date performance (as of Dec. 16, 2020): +70.7%
Willingness to innovate to stay competitive is one way investors can evaluate the management of publicly traded companies. While investors might expect that nimbleness from small, riskier startups, it can be harder to achieve for bigger, safer companies. Of course credit cards have been a big step toward society going cashless, but Visa has gone well beyond that with its efforts in mobile payments via wearables and its work on the Visa Direct payment model. Additionally, Visa is trying to buy Plaid, a software startup that allows apps to access bank accounts. Visa also recently closed a deal for YellowPepper, a digital finance company focused on Latin America.
YTD performance: +9.6%
Wells Fargo (WFC)
This financial services company has remained pretty beaten down because of a host of factors, including its fake accounts scandal. Ultra-low interest rates because of the pandemic haven’t helped things, neither has having to sock away extra money for potential loan losses during the economic downturn. But as one of the biggest banks in the country, Wells Fargo isn’t going anywhere. It has already reached a settlement with the government, and has a relatively new CEO, who is widely respected and was brought in from an outside company. Paying a 1.4% dividend, the bank may be a good place to park some money while waiting for the stock to recover.
YTD performance: -42.6%
Microsoft Corp. (MSFT)
Computer users tend to fall into two camps: Mac people and PC people. As a leading company serving the latter, Microsoft has gone far beyond its Windows operating system. Its suite of products includes household-name software like Excel and PowerPoint, and users devoted to that ecosystem may be less likely to switch. Microsoft has also been killing it when it comes to cloud services, which have only increased in importance as the pandemic means more people are working, learning and entertaining themselves from home. Although revenue growth has been slowing for the company’s Azure cloud services business, it still saw nearly 50% revenue growth in the company’s most recent quarter.
YTD performance: +37.9%
One tidbit of wisdom that beginner investors may be told is to invest in things they know and use every day. By that measure, Apple would probably rank highly in beginner portfolios, considering how many iPhones are out there. And when people combine their use of the iPhone with other Apple products such as iPads, Macs and Apple Watches, it makes them that much less likely to switch to a competitor. “From remote learning to the home office, Apple products have been a window to the world for users as the pandemic continues,” CEO Tim Cook said in a press release accompanying the company’s most recent quarterly earnings report. Although iPhone sales slipped in the most recent quarter as people awaited Apple’s 5G iPhones, increased sales of Macs, iPads and services helped boost total net sales to more than $64 billion.
YTD performance: +71.6%
One of the arguments for owning this conglomerate is that it’s led by one of the world’s most respected investors, Warren Buffett. That means investors buy into this one stock and get lots of diversification with many companies that Buffett has hand selected — without having to pay fees associated with funds. One part of Berkshire Hathaway owns and operates businesses in the financial services industry (particularly insurance) and the freight transportation, real estate brokerage, energy, utilities and diversified manufacturing industries. The other part invests in stocks such as Apple, Coca-Cola (KO) and American Express (AXP). While Berkshire Hathaway’s Class A shares — which trade around $335,000 a pop — may be prohibitively expensive for many new investors, its B shares are much more modestly priced. They trade for around $223 per share.
YTD performance (BRK.B): -2.8%
This list is a bit heavy on the so-called FAANG stocks — Facebook (FB), Amazon, Apple, Netflix (NFLX) and Google parent company Alphabet — but there’s good reason for that. These megacap technology-related companies were investing stalwarts even before the pandemic, making up a big chunk of the S&P 500. And during the pandemic, they became a place for investors looking for relatively safe names. It may sound odd to list tech-related businesses as relatively safe assets, but these companies with their huge market capitalizations and strong financial performance are far from being risky startups. While Alphabet hasn’t been the best-performing FAANG name so far this year, it remains a standby for investors looking for growth packaged in a large company with a strong balance sheet.
YTD performance (GOOG): +28.9%
Procter & Gamble (PG)
While investors will want to include growth stocks in their portfolios, they’re also going to want to buy shares of safer stocks, too. Procter & Gamble is one of those so-called defensive companies because, as a consumer staples company, it sells goods that people are going to need regardless of how the economy is performing. These aren’t the sexiest, fastest-growing stocks, but during recessions, you’ll be glad you hold them. Not only was Procter & Gamble able to maintain its dividend during the pandemic when other companies were suspending or cutting theirs — it was able to increase its payout. The company has been paying a dividend for 130 consecutive years and has increased its dividend for 64 consecutive years, with a current yield of 2.3%.
YTD performance: +13.9%
Walt Disney (DIS)
It’s often said that content is king. In that respect, Disney has an advantage, especially as the streaming wars heat up. Investors recently were pleased when the entertainment conglomerate said it expects its Disney+ streaming service to have 230 million to 260 million subscribers by 2024, well up from the 60 million to 90 million subscribers Disney said it was expecting when it launched Disney+ a little over a year ago. It has nearly 87 million subscribers now. It’s going to take some time for Disney’s streaming business to become profitable, but it seems that the company’s theme parks business will have recovered from the pandemic well before then.
YTD performance: +16.8%
Nine of the best stocks to buy for a starter portfolio:
— Amazon.com (AMZN)
— Visa (V)
— Wells Fargo (WFC)
— Microsoft Corp. (MSFT)
— Apple (AAPL)
— Procter & Gamble (PG)
— Walt Disney (DIS)
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Update 12/17/20: This story was published at an earlier date and has been updated with new information.