New investors should generally stick to a diversified portfolio of low-cost index funds. Consistently making contributions, staying the course, and keeping fees low can help index investors beat most stock pickers and active fund managers.
However, picking a few choice stocks to augment your portfolio can be a great way to learn how the markets work. When it comes to beginner stock picks, sticking to large-cap, blue-chip U.S. companies is generally a good idea. These companies often possess lower volatility than their small-cap or international counterparts, pay dividends, and have more transparent, understandable business models.
When it comes to beginner stock picks, it’s safer to pick a quality company than one that looks undervalued. As Warren Buffett noted: “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.” Here are nine of the best stocks for a starter stock portfolio:
— Berkshire Hathaway Inc. (ticker: BRK.B, BRK.A)
— Apple Inc. (AAPL)
— Microsoft Corp. (MSFT)
— Coca-Cola Co. (KO)
— Costco Wholesale Corp. (COST)
— Pfizer Inc. (PFE)
— AT&T Inc. (T)
— NextEra Energy Inc. (NEE)
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Berkshire Hathaway Inc. (BRK.B, BRK.A)
Buffett turned 92 this year, but his investment style remains as successful and resilient as when he was younger.
Case in point: Shares of Berkshire are only down 7.4% year to date through Oct. 17, compared to the 22.8% loss suffered by the S&P 500. This is thanks to Berkshire’s hand-picked portfolio of resilient large-cap U.S. stocks, which currently includes names like Bank of America Corp. (BAC), Apple, Coca-Cola, Kraft-Heinz Co. (KHC), Chevron Corp. (CVX) and American Express Co. (AXP).
By buying Berkshire, investors essentially gain access to Buffett and his stock-picking expertise. This makes Berkshire a great long-term, buy-and-hold-forever pick for beginners.
Apple Inc. (AAPL)
For good reason, Apple is both the largest holding in Buffett’s portfolio and the largest constituent in the S&P 500 by market capitalization.
Thanks to two decades of innovation, Apple has continually smashed earnings and revenue estimates year after year, making it one of the best-performing stocks in the 21st century.
Despite lower-than-expected sales of the new iPhone 14 and a 19.5% year-to-date decline in its stock price, Apple continues to boast strong fundamentals, with a massive war chest of cash on hand and strong margins. The company will report its 2022 fourth-quarter earnings on Oct. 27, with analysts estimating earnings per share, or EPS, of $1.27.
Microsoft Corp. (MSFT)
Apple’s direct competitor for many decades now has been Microsoft. As the second-largest constituent in the S&P 500 index by market capitalization, Microsoft has moved beyond operating system software to strong offerings in gaming, cloud computing and hardware.
While Microsoft’s stock is down nearly 30% this year, the company continues to pursue growth strategies. In January, Microsoft agreed to buy Activision Blizzard Inc. (ATVI) for $68.7 billion in a bid to expand its gaming segment. In March, the company acquired Nuance Communications for $19.7 billion to increase its voice-recognition software and conversational AI capabilities.
Microsoft is expected to report earnings after market close on Oct. 25, with analysts on edge to see if the company can meet its revenue guidance of $49.25 billion for the quarter.
Chances are you’ve used an Alphabet product recently, most likely the ubiquitous Google search engine. Or, perhaps its Android smartphone operating system, Google Chrome browser or Google Play app store.
Despite losing 30% year to date after missing consensus EPS estimates for two consecutive quarters, Alphabet remains on the offensive. The company strengthened its cybersecurity offerings by acquiring Mandiant for $5.4 million, and recently unveiled the new Pixel 7 smartphone and Pixel Watch.
In the second quarter of 2022, Alphabet bought back $15 billion of its own stock as a sign of management confidence in its comeback. Investors watching Alphabet’s next earnings report on Oct. 25 will be comparing revenue figures for YouTube advertising and Google Cloud against the company’s guidance.
Coca-Cola Co. (KO)
In 1988, Buffett bought nearly $1 billion of Coca-Cola shares. At the time, this represented around 6% of the company’s outstanding shares. Today, Coca-Cola remains a mainstay in Buffett’s portfolio at 7%.
Investors who bought Coca-Cola and held it long term have been richly rewarded, given that the company has raised its dividend for 60 consecutive years, earning it the title of “dividend king.”
Coca-Cola currently has a beta of just 0.68, making it significantly less sensitive and volatile than the broader market. The stock pays a dividend yield of 3.1%, well above the average for the S&P 500 index. As a durable consumer staple company, Coca-Cola makes for an excellent defensive core holding in any portfolio.
Costco Wholesale Corp. (COST)
Costco’s perennially cheap $1.50 hot-dog-and-drink combo is a great example of the company’s devotion to customer satisfaction. When CEO Craig Jelinek told co-founder Jim Sinegal that inflation was making it difficult to keep the combo’s $1.50 price tag, the latter told him to “figure it out” and that raising the price wasn’t an option. As a result, Costco built a dedicated hot dog manufacturing plant to keep the combo cheap.
That’s not all there is from Costco though. Consumers can find a variety of products on its warehouse shelves, most at a low price thanks to its membership-based subscription model that drives strong recurring revenue.
The company made a splash with its third-quarter 2022 earnings, beating consensus EPS estimates by 5% and increasing year-on-year revenue and net income by 15% and 11.9%, respectively, despite inflation and rising interest rates.
Pfizer Inc. (PFE)
Stocks from the health care sector make for great beginner picks thanks to their low volatility and strong dividends. As a sector, health care companies benefit from evergreen demand due to the essential nature of their products.
A great pick here is Pfizer, which has benefited greatly over the last two years thanks to the tail wind from its COVID-19 vaccine. This growth looks to be continuing, with management providing guidance that the company’s Comirnaty vaccine is expected to bring in $32 billion in revenue by the end of 2022 alone. Pfizer also recently announced positive preliminary data for a study on its adapted COVID-19 vaccine targeting the BA.4/BA.5 omicron subvariants of the virus.
With a low beta of 0.57 and a high dividend yield of 3.7%, Pfizer could be a great long-term buy-and-hold stock.
AT&T Inc. (T)
Few companies have endured as long as AT&T has. Founded in 1876 by the inventor of the telephone, Alexander Graham Bell, the company now operates as one of the three national 5G providers in the U.S., with a strong customer base for both its wireless and wireline segments.
Incredibly, AT&T is currently paying a dividend yield of 7.4% due to its stock falling hard in 2022, all the while sporting a low beta of 0.72. Despite the high yield, the company’s payout ratio remains sustainable at 75.3%. Now is a good time to buy this traditionally defensive low-volatility stock.
NextEra Energy Inc. (NEE)
The utilities sector has traditionally been a defensive investment, providing a haven for investors when recession risks are elevated. This is due to its highly regulated and essential nature. Even when times are rough, people need to keep the gas, lights and water on, and thus utilities companies can maintain their revenues, margins and earnings.
A great utilities sector stock to buy for beginners is NextEra Energy, which is currently the largest utility by market cap in the S&P 500. For its last earnings report, NextEra Energy smashed consensus EPS estimates, delivering 81 cents per share versus expectations for 75 cents. The company is also a great dividend pick, having increased its dividend by 29.4% over the last five years, and currently pays a yield of 2.3%.
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9 Best Stocks for a Starter Portfolio originally appeared on usnews.com
