The S&P 500 is off to a stellar start in 2023, posting a 6.2% total return in January alone — a stark contrast to the 19.4% sell-off in 2022. That makes the first few months of 2023 a great time to start creating an “all-weather” stock market portfolio that’s built for the long haul. Stocks, after all, are easily the best-performing investment asset class historically, besting the likes of bonds, commodities and bank savings vehicles.
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So where should a novice investor begin? Opinions vary, but any “starter stock” should have certain characteristics, which may include low volatility, solid management, a sustainable dividend payment and an easily understood business model. Oh, and it should be profitable, too. The following nine portfolio starter stocks are proven industry leaders that check most of those boxes.
Here are nine of the best stocks to buy for a starter portfolio:
— Berkshire Hathaway Inc. (ticker: BRK.B, BRK.A)
— Apple Inc. (AAPL)
— Microsoft Corp. (MSFT)
— Coca-Cola Co. (KO)
— Costco Wholesale Corp. (COST)
— AT&T Inc. (T)
— Amazon.com Inc. (AMZN)
— Bank of America Corp. (BAC)
Berkshire Hathaway Inc. (BRK.B, BRK.A)
Unlike most blue-chip stocks, Berkshire Hathaway had a strong 2022. The stock easily outpaced the S&P 500, losing just 1.2% while the S&P 500 shed 19.4%. 2023 should be markedly better for Berkshire and its 92-year-old figurehead Warren Buffett. Insurance industry profits look promising for the year, which benefits Berkshire, as the company owns Geico and, following an October 2022 purchase, insurer Alleghany as well. “Insurance could be a nice tailwind for Berkshire in 2023 if there are weaknesses elsewhere,” noted Edward Jones analyst James Shanahan, who recently issued a “buy” rating on Berkshire Hathaway. Berkshire is also one of those hard-to-find stocks that consistently bests the benchmark S&P 500 over the long haul – it’s done so over the last six months, as well as over the last one- and five-year periods.
Apple Inc. (AAPL)
It’s no coincidence that Apple, with a 38% weighting, is easily the largest stock position in the Berkshire Hathaway portfolio. That begs the question: If Apple is good enough for Warren Buffett, shouldn’t it be good enough for a brand-new portfolio? If you’re looking to early 2023 returns for an answer, you’ll get a strong “yes,” as Apple shares surged 11.1% in January. In a tough economic environment, analysts expect Apple’s fiscal first-quarter earnings to clock in at $1.94 per share, a year-over-year decline of about 8%. For the long haul, however, Apple is one of the strongest-performing stocks in the past three decades and is loaded with management talent and creative ingenuity. It should be a mainstay for any nascent investment portfolio.
Microsoft Corp. (MSFT)
As of Jan. 31, Microsoft’s stock had lost about 19% over the past year. When you’re looking for a “starter stock,” however, leave recency bias behind and focus on the fundamentals. For example, virtually every analyst covering MSFT has a “buy” rating on the stock. Morgan Stanley analyst Keith Weiss currently has a target price of $307 for MSFT, which closed at $247.81 on Jan. 31. Microsoft is also placing a big bet on artificial intelligence, with a $10 billion investment in ChatGPT maker OpenAI. MSFT hopes to accelerate AI breakthroughs, especially in the supercomputing and cloud computing marketplaces. Getting in front of the AI revolution should spur further growth in Microsoft stock over the long haul.
For a massively successful global technology brand, Google parent company Alphabet seems like a steal at its current price of about $98 per share and modest price-to-earnings ratio of 19. Even though Alphabet shares plummeted in 2022, through the end of January GOOGL’s stock price was still up a comfortable 67% over five years. In the same time frame, company revenues have surged 88%, to $257.6 billion. At $78.5 billion, operating income has soared 162% in the same time period. The company has a global market share for internet search of more than 90%, and its big investment in Google Cloud is paying off — the service ranks third in the world in sector market share. Its YouTube subsidiary also continues to shine as one of the leading media sites in the world and just boosted its potential streaming capability with a $2 billion purchase of the NFL Sunday Ticket. GOOGL shares jumped 12% in January 2023, signaling that plenty of investors still believe Alphabet is on the right track.
Coca-Cola Co. (KO)
You don’t build a great stock portfolio out of the gate without including some of the top consumer brands in the world. That’s the case with Coca-Cola, which routinely outperforms its peers. At 58.5%, KO’s trailing 12-month gross profit margin is high for the consumer goods industry, as is Coca-Cola’s 28.9% trailing 12-month earnings before interest and taxes, or EBIT, margin. Coke does many things well as a consumer food and drink powerhouse. Meanwhile, KO has shown resiliency as it easily outperformed the benchmark S&P 500 in 2023, advancing 10.6% during a bear market. With a good dividend yield of 2.9% and a track record of delivering in good economic times and bad, Coca-Cola deserves a spot on your stock investment shelf.
Costco Wholesale Corp. (COST)
You can’t go wrong setting aside a slot in your starter portfolio for a stock like Costco. Shares are nominally pricey, closing at $511.14 on Jan. 31, but there’s plenty of room for growth. History bears that sentiment out as Costco stock is up nearly 500% in the past decade, compared with 169% for the S&P 500. The big-box retailer boasts a current 93% membership renewal rate, as customers flock to Costco to keep their household budgets in line by buying bulk goods. Revenues should also continue to grow as Costco opens 27 new warehouse stores in 2023. COST has a consensus analyst “strong buy” outlook with an average target price of $550.77 — implying nearly 8% upside to current levels, and Cowen & Co. recently set a $600 target price on the stock. Anytime you see a leading global retail brand with a proven track record of profits, a history of raising dividends and an intensely loyal customer base — as is the case with Costco — take the money and run.
AT&T Inc. (T)
AT&T looks like a robust and reliable stock for investors just getting their feet wet in the market. Its fourth-quarter numbers prove the point, with subscriber growth that topped consensus expectations. The telecom behemoth has slimmed down in the past 30 months, divesting its WarnerMedia unit via a merger with Discovery and spinning off DirecTV, which just lost the lucrative NFL Sunday Ticket to YouTube. Shedding its media subsidiary debt enables AT&T to focus on upgrading its core telecom business going forward.
AT&T saw its core wireless base expand in 2022, adding 2.9 million subscribers against only 201,000 for its chief rival, Verizon Communications Inc. (VZ). Overall, T’s wireless revenues rose 8% in 2022 and the company expects a 4% wireless growth rate in 2023. That’s good news for investors, who should see an improvement in T’s already impressive 5.6% dividend yield. Low-volatility stocks with great dividends should be a mainstay of any starter stock portfolio, and AT&T certainly fits the bill here.
Amazon.com Inc. (AMZN)
Amazon is making news in early 2023, and for all the wrong reasons. The company announced a layoff of 18,000 employees in a company-wide cost-cutting effort. The U.S. Labor Department is also investigating AMZN for allegedly shoddy warehouse conditions and practices, but don’t let the temporary bad news fool you. Amazon is a rare company that dominates two big industries: global web services and e-commerce. Despite its strong positioning, Amazon still has room to grow in both arenas. Amazon owns 15% of the global retail market, and it owns 38% of the overall U.S. online shopping market. With digital shopping still in its relative infancy, there’s plenty of room for growth over the next decade, and Amazon is in the driver’s seat. Additionally, Amazon Web Services, the company’s cloud computing arm, saw revenues rise by 27% in the third quarter, showing Amazon’s power in one of the fastest-growing industries on the planet.
Bank of America Corp. (BAC)
Bank of America is another low-volatility stock that should have a home in a starter stock portfolio built for the long term. In the near term, Oppenheimer analyst Chris Kotowski believes banks will be “steadier than most think” in 2023. BAC has also dropped the hammer on the digital banking front, with 73% of its verified digital users conducting their banking digitally via the Bank of America web portal or through its mobile app. Tack on a steady dividend payout of 2.5%, and BAC becomes a top financial industry selection for any beginning portfolio.
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9 Best Stocks for a Starter Portfolio originally appeared on usnews.com
Update 02/01/23: This story was previously published at an earlier date and has been updated with new information.
