Investing in stocks these days is trickier than ever because we have perilous conditions — yet stocks are setting records. It is far too easy to get wrapped up in themes and get caught on the wrong side of trends. Today we will discuss three stocks for beginners that are as safe as they can possibly be. This is very important now, especially since we are in the process of exiting a global quarantine.
The world’s business affairs suffered a giant jolt in March. As a result, we have possibly the worst economic conditions of all time, and governments are spending trillions trying to get us out of it. Picking the wrong stock now could be devastating especially to new investors.
Financial success starts with avoiding the obvious mistakes, so it is important to pick the portfolio members right. Some companies consistent almost boring and they never create their own drama. Others are daring and those teams are brilliant at executing growth plans. The problems often come from hidden underlying problems. Meaning there are some strong stocks that now seem unbeatable carry tremendous risk from having too much potential inside the price.
All three stocks today have successful management for decades, so they are not flukes. They are:
Let’s go into a little more depth about each of these picks.
Great Stocks for Beginners: Disney (DIS)
It feels like there is not a soul on this planet that does not know Mickey Mouse. Disney assets have been world-renowned for decades on end. The company is almost 100 years old and still has the confidence of both Main Street and Wall Street alike. Its theme parks across the world are usually packed and its movie releases are epic at the theaters. These facts are under assault now, and they are fighting to re-right the ship.
The recovery from the Covid-19 crisis in ongoing so for now, DIS income streams are severely depressed. It is important that the re-opening process from here does not suffer further hiccups. Disney voluntarily limited its park capacity (and had to re-close Hong Kong Disneyland after another Covid-19 outbreak), but this is an ongoing risk. All crowd economies could be subject to new rules post-crisis. But I am sure that people will eventually return en masse to Disney’s parks and shows.
Besides, management is diversifying their income streams so the blows will not be lethal.
For example, they just released a streaming platform, Disney+, that became an instant success. This leaves management outlet options because the smart phones and tablets give them a new direct reach into peoples’ pockets and purses. DIS stock will do just fine. It has so far withstood the test of time through thick and thin, so owning it here is not going to be a financial mistake. The upside potential is definitely more substantial than the downside risk.
Valuation matters, Disney stock has tons of it. However, currently the typical metrics are skewed because of the shut-down effect. But there’s no doubt that all of its assets are still worth billions across the globe.
In addition investors will have the added benefit of dividends while they wait for their capital appreciation to materialize.
Another iconic company is McDonald’s. The golden arches are beacons for kids everywhere on this earth, and this is proof of the success that this fast food franchise has had for decades. The team is proven and has deservedly earned the benefit of the doubt on Wall Street. Taking a financial risk on such a success story is as safe as they get.
This is definitely a stock for beginners, as it has all the elements that make strong building block of a successful portfolio. MCD stock has tons of actual stock value and intangible assets from brand recognition. Management keeps executing on plans well, because they are steering the ship into the age where technology is all the rage. They’ve been on the forefront of that bringing their stores into the new trends of doing business. In that sense they are keeping up with the champ at this, which is Chipotle (NYSE:CMG).
It’s good to see an old dog learn new tricks, which is a great sign of maturity and should inspire investor confidence. McDonald’s stock also pays a respectable dividend, especially during the time when finding worthwhile fixed-income options can be tough. The stock now is coming off a solid base and is setting higher highs. While this is not a generational buy, this is the kind of stock that investors pass on to generations thereafter.
With the first two stocks today, we entertained the world and then fed it. This third stock will equip it with shoes. Nike has been doing this for almost 60 years. Over that time, it has proven itself a team that can clobber its competition regardless of how fierce they are — just ask Under Armour (NYSE:UA) about that. The supremacy of Nike in the shoe industry has been astonishing. This is a standing champ that has successfully defended its title for decades.
Value is not a problem here either. Nike stock has a 61 trailing price-to-earnings ratio which is not cheap, but it’s definitely not bloated. The stock price is inside of a realistic range, and there is not a lot of unrealistic hope in it at only four times the yearly sales. The metrics are distorted from the effects of the pandemic.
Nike is not immune to controversies — it has had its fair share of them over the years. But they always use them as leverage to grow even faster. Case in point the situation with the national football league. In the beginning critics thought it was a disaster for Nike, but in the end it turned out to have more positives that detriments.
Nike stock just made new highs so it’s not an obvious place to get too long it. There’s some room for downside especially if it loses $92 per share. But there’s also a lot of support mainly thanks to the virus crisis crash. When the stock market gets a giant corrective shock like this, while there is pain on Wall Street it also creates solid floors.
The bulls in NKE stock came to play hard because the snap-back rally was fierce. Owning it is most definitely a smart investment for the long-term and totally suitable for beginner investors. However there is no reason to rush into it at least not for a full sized position now.
A successful portfolio should have a solid foundation. Disney, McDonald’s and Nike can be the pillars to such foundation. They carry very little headline risk and they have proven that they can navigate tough times successfully. This is a great balance between reasonable growth potential and low-risk.
In addition, they provide the prospect of dividends to investors.
Another aspect of successful investing is to take small bites regardless of how good the stock seems right now. It would be a mistake to take full positions all at once, it is best to enter them in tranches. After all the volatility index is still double what it should be,and this is an indication that there’s still a lot of risk in this market.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities.