There are about 3,500 publicly traded companies listed on U.S. stock exchanges. That is an overwhelming amount of choice for investors. Picking the right stocks to invest in and use to build a sound portfolio can be a daunting task. This is especially true for people who are new to investing. However, there are a few rules that can help identify stocks to buy for beginners, and help new investors make overall smart choices.
These rules include “buy what you know” — or pick stocks of companies you understand. Choosing stocks of companies that have “strong fundamentals,” or solid balance sheets, is another rule. And, of course, “diversifying your investments,” or making sure that you don’t put all your eggs in one stock, is also an axiom to live by.
Here we look at seven excellent stocks to buy for beginners;:
Berkshire Hathaway (NYSE:BRK.B)
Procter & Gamble (NYSE:PG)
Stocks to Buy for Beginners: Amazon (AMZN)
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Online retail giant Amazon ticks all the boxes when it comes to investing rules. The company is a well-known brand that people understand and use in their daily lives — ordering everything from toilet paper to television sets online. The company has a solid balance sheet and is super profitable. And Amazon is an increasingly diverse company, branching out into everything from artificial intelligence to the streaming of movies and TV shows. Brands include Amazon Web Services, Whole Foods Market and Prime Video, to name a few.
The stock is not cheap by any means. At more than $3,000 a share, it is the most expensive security on this list. Nevertheless, AMZN is a solid growth stock for beginner investors.
Recently, Amazon has been expanding into cloud computing and focusing on developing its own content to compete in the streaming wars against the likes of Netflix (NASDAQ:NFLX) and Hulu. But its bread-and-butter e-commerce business continues to go gangbusters and has gotten a boost during the pandemic as more people order goods online.
AMZN stock has essentially doubled from its March lows to $3,220 a share today. Again, not cheap, but definitely worth the price to add powerful growth to a portfolio.
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There is no bigger name in consumer technology than Apple. The company co-founded by Steve Jobs out of a garage in the 1970s has been responsible for many of the biggest consumer tech products developed over the past 45 years — from the Apple II and Macintosh computers to the iPod and iPhone. All investors are familiar with Apple and its highly visible products.
The company has a strong balance sheet and rock-solid business model. It also has a competitive advantage in most of the markets in which it has a presence, having effectively developed its own technological ecosystem with iPads and Apple Watches.
Not content to rest on its laurels, Apple is always pushing into new frontiers. Most recently, the company has focused on offering new services through products such as Apple Pay and Apple TV. These new products and services are increasing its cash flow and broadening the Apple brand. Streaming content through the subscription Apple TV+ service is another way that the company is diversifying its business.
AAPL stock has doubled from its March low and the company recently undertook a 4-for-1 stock split that now has its shares priced at $115 each. This makes them more affordable and attractive to individual retail investors. This is a stock that people can buy, hold and retire on.
Stocks to Buy for Beginners: Berkshire Hathaway (BRK.B)
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Investors are in trusted hands with Berkshire Hathaway. In fact, you’re in the hands of the most successful investor in history — Warren Buffett. And his holding company, Berkshire Hathaway, owns a lot of different businesses and investments, from being the largest shareholder of Apple to owning the GEICO insurance company. Berkshire Hathaway has an impeccable track record of making smart acquisitions and investments.
Buffett’s buy-and-hold investment strategy has also proven to be unmatched in terms of its success. From 2008 to 2018, the company saw cumulative growth of 119.7%, compared to 73.2% growth for the S&P 500. Additionally, Berkshire Hathaway has what is often called a “fortress balance sheet” that includes more than $120 billion in cash. The huge pile of cash allows the company to provide financing to other distressed companies at extremely favorable terms. While the company’s class A stock trades at $323,000 a share, new investors can purchase the company’s class B shares for $215 per share.
For new investors who may be uncertain of which stocks to buy, they can rest easy putting money into Berkshire Hathaway.
Procter & Gamble (PG)
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In addition to profits, investors can also earn dividend payments from the stocks they hold in their portfolio. And one of the most stable and best paying dividend stocks is consumer goods company Procter & Gamble. Commonly known by the acronym P&G, the company has a strong track record of delivering exceptional dividends to shareholders.
In 2020, for example, Procter & Gamble raised its dividend for the 64th consecutive year, and this year marked the 130th consecutive year P&G has paid a dividend since incorporating way back in 1890. As of October 2020, P&G’s annual dividend payment is $3.16 a share for a dividend yield of 2.29%.
Another good reasons to buy PG stock is its many well-known consumer products ranging from Pampers diapers and Tide laundry detergent to Gillette razors and Crest toothpaste. Sales have gotten a boost during the pandemic as people have stocked up on essentials while sheltering in place at home. PG stock has risen 43% since the market crash in March and now trades at $140 a share.
Stocks to Buy for Beginners: Costco (COST)
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Grocery retailer Costco is a simple but powerful business that is familiar to most Americans. The company’s warehouse setting and wholesale pricing have revolutionized the retail sector and changed the way people shop and consume food.
While its approach has been replicated, Costco retains a competitive edge and commands huge brand loyalty among consumers. These facts make the company a worthwhile investment, especially beginners who want a stock they know and understand.
Like other companies on this list, Costco has seen a bump in sales during the Covid-19 pandemic as people spend more to stock up on food and other essentials. In addition, Costco has been growing its online sales. E-commerce sales nearly doubled, rising 90% in the quarter ended Aug. 30. Online sales represent a huge and growing source of revenue for the retailer. That said, Costco continues to open brick-and-mortar stores, planning to open nine new locations by the end of 2020 — six in the U.S. and three in Canada.
Costco stock has increased 500% since 2010 and is up roughly 40% from its March low to $367.
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The Golden Arches is a good investment in good times and bad. Despite intense competition, McDonald’s remains the world’s largest fast-food restaurant chain with nearly 40,000 locations in 100 countries. And while the company’s dine-in restaurants closed during the pandemic, its drive-thru windows remained open, helping to keep revenue buoyant.
The company also continues to experiment with its menu and change things up with the food and beverage offerings. McDonald’s café that serves a variety of coffees, cookies and muffins has proven to be a hit with the public.
MCD stock has been on an uptrend recently following an analyst upgrade by Bank of America, which raised its 12-month price target on the stock to $250 a share. McDonald’s stock currently trades at $225 a share and has increased 64% since its March bottom.
Going forward, McDonald’s has a new CEO and is testing out delivery services and plant-based burgers. This is a company and stock that is both familiar and innovative, giving it plenty of growth potential for investors.
Stocks to Buy for Beginners: FedEx (FDX)
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You can count on Federal Express, and not just to deliver packages to your house or business. The company also delivers for shareholders. FDX stock has been a major outperformer in recent months, more than doubling since March when shares were trading at $90. Today, the stock is changing hands for $271 per share.
The reality is that the Covid-19 pandemic has been a massive accelerator for the private delivery company as people and businesses order and ship a growing number of products. The company’s most recent quarterly results handily beat analysts’ expectations.
Moving through the final quarter of the year, FedEx expects to see a further boost to its business during the busy holiday shopping season as people avoid malls in favor of ordering gifts online. Indeed, demand shows no signs of slowing down and FedEx is successfully fending off competition from rivals such as Amazon. For beginner investors, FDX is a solid blue-chip stock with enormous growth potential. The company is also a trusted and established brand that does one thing and does it extremely well — deliveries.
On the date of publication, Joel Baglole held a long position in AAPL, BRK.B, BAC, MCD and FDX.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.