Google the words “Stocks for Beginners.”
What happens? You get about 826,000 results.
During the novel coronavirus, people have been doing all kinds of things to pass the time. Some have used the work-from-home phenomenon to teach themselves about investing.
Unfortunately, though, for every story about rookie investors doing well during the pandemic correction, there’s another that reveals the sordid underbelly that is the stock markets. I’ve been writing about stocks for more than a decade, and the only thing I know is how much I don’t know.
So, for those who want to give investing a try, there are plenty of discount brokers that provide fractional share trading. One of them, Robinhood, has become quite wealthy as a result of this surge in interest. And for those that don’t, I’ve got a list of nine stocks that are perfect for beginners.
However, to make things interesting, I’m going to replicate a strategy I first used in 2016 that created a retirement portfolio of 10 stocks: selecting the holdings based on the first letter of their corporate name.
So, my first stock for beginners will be a company whose corporate name begins with a B, and so on, through the letter S. They are:
- Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B)
- Electronic Arts (NASDAQ:EA)
- Estee Lauder (NYSE:EL)
- General Mills (NYSE:GIS)
- iRobot (NASDAQ:IRBT)
- Netflix (NASDAQ:NFLX)
- Nike (NYSE:NKE)
- RH (NYSE:RH)
- Shopify (NYSE:SHOP)
Stocks for Beginners to Buy: Berkshire Hathaway (BRK.A,BRK.B)
If you’re a beginner investor, Warren Buffett is one name in finance you might recognize. He’s the legendary founder of the $468-billion holding company that he still runs at the young age of 89.
Overall, Berkshire stock hasn’t had a good run in 2020. In fact, it’s down about 15% year-to-date. The stock hasn’t had a good decade, generating an annualized 10-year total return of 9.4% — more than five percentage points less than the U.S. markets as a whole.
So, as much as I admire Warren Buffett’s investing prowess, I do believe Berkshire can do a lot more to grow the share price beyond $200. In June 2019, I suggested seven ways it could make its stock more attractive.
Moreover, recent news suggests Buffett bought back more than $5 billion in Berkshire stock during the second quarter. So it turns out you can teach an old dog new tricks. Oh, and Berkshire also owns 5.8% of Apple (NASDAQ:AAPL). In fact, the iPhone maker accounts for 43% of Berkshire’s $226 billion equity portfolio.
Just studying Buffett’s shareholder letters will teach you loads about investing. And that, along with all these other aspects, makes Berkshire stock a great option for beginners.
Estee Lauder (EL)
One group of stocks that have taken it on the chin in 2020 are cosmetics-related companies, such as Estee Lauder. With cases of Covid-19 surging, it makes it difficult for places such as Ulta Beauty (NASDAQ:ULTA) and Sephora to service its customers. That’s especially true for trying on makeup and all those fun things.
However, Estee Lauder has delivered for shareholders over the long-term, generating a 15-year annualized total return of 17.1% — almost double the U.S. markets as a whole.
Interestingly, despite overall sales falling 11% in the company’s third-quarter, it said in May that the travel retail and duty-free segment saw an uptick in revenue during the quarter. In fact, “According to Estee Lauder’s CEO Fabrizio Freda, between 30% and 40% are buying something, up sharply from typically 10%. ‘There are fewer active doors, but very high conversion rates,’ he explains, citing better marketing and less crowded retail stores.”
So, although Fabrizio Fredo has been CEO for 11 years, the Lauder family remains actively involved in the business through seats on the board and majority control of the voting power.
And as long as the Lauder’s remain engaged in the business, shareholders of EL stock are likely to keep winning.
Stocks for Beginners to Buy: General Mills (GIS)
The maker of more than 100 brands that include Cheerios cereal, Haagen-Dazs ice cream, Yoplait yogurt, Nature Valley granola bars and many other food brands, also has a significant pet food business thanks to its $8 billion acquisition of Blue Buffalo in April 2018.
That move signaled General Mills wasn’t going to sit by and see other packaged foods companies steal its thunder. Today, the pet segment generates a big chunk of its revenue growth. In 2019, the pet segment saw net sales grow by 18% to $1.69 billion, while the division’s operating profits grew by 46% to $390.7 million.
Don’t get me wrong. A majority of its sales and profits are generated by General Mills’ North American retail business, which has significantly benefited from Covid-19 and people cooking at home. In the fourth quarter, its North American retail business saw sales increase by 36%, with a 69% increase in operating profits.
Additionally, one thing that’s resulted from the pandemic is that grocery stores won’t be carrying as many products post-Covid. This means General Mills will be able to focus on its best sellers and ditch the rest, saving it money in the long run.
Therefore, as a beginner investor, General Mills is a relatively easy business to understand. Which, in turn, makes it a great stock for beginning investors to look at.
The company is best known for its Roomba robotic vacuum. In 2012, robotic vacuums accounted for just 13% of the total vacuum market. However, in 2019, that had increased to 24% — a compound annual growth rate of 22%.
That said, in the U.S., the company estimates that it has the opportunity to help grow robotic vacuum cleaners. Currently, they are in 16 million households out of a total of 128 million households. So the potential is tremendous.
Moreover, of vacuum cleaners that sell for more than $200 in the North America, iRobot holds approximately 82% of the market. On a global basis, it has 67% of the high-end vacuum market.
In the first quarter, iRobot’s sales fell 19% to $192.5 million due in large part to challenges in the supply chain caused by Covid-19. That seriously affected its profitability, which went from a $22.5 million profit in Q1 2019 to a loss of $18.1 million in Q1 2020. However, despite the first-quarter setback, the company’s stock is up 42% YTD and 18.6% on an annualized basis over the past five years.
In April, iRobot announced that it was halting plans to launch Terra, its lawn-mowing robot due to the pandemic. In 2019, the company’s beta tests went well. But now, it wants to focus on the Roomba and Braava, the robotic mop it launched in 2013. So, with all of that in mind, IRBT stock is another one of the top stocks for beginners to buy.
Stocks for Beginners to Buy: Netflix (NFLX)
Every business on this list operates a business whose reason for being is easy to understand. In Netflix’s case, it’s to be the global purveyor of video streaming content. That’s simple enough. Ask people if they’ve heard of Netflix, and I’m not sure you would get many that haven’t.
However, it’s not the easiest stock for beginners to understand when it comes to cash flow. That’s because Netflix spends a fortune on content, and the cost of that content is amortized over several years. So, for example, in 2019, Netflix spent $14.6 billion on content, amortizing approximately $9.2 billion of it, for a cash-spend to amortization ratio of 1.6 — the highest ratio in its history.
That said, Next Level Finance does an excellent job explaining why a higher ratio isn’t a bad thing.
So, despite adding 26 million subscribers through the first six months of 2020 — two million fewer than the number it added in all of 2019 — the company’s stock fell July 17 on news it only added 10.1 million subscribers in April through June.
The good news, though, is that analysts were expecting a gain of 8.3 million subscribers — which means Netflix delivered 22% more than the consensus.
So as long as Netflix continues to add subscribers, the company’s content costs shouldn’t be a problem. And competition or not, Netflix is still the biggest and the best of the video streamers.
There always seems to be a company that looks ready to take down the world’s largest athletic footwear and apparel brand and then Nike sends them packing.
Under Armour (NYSE:UA, NYSE:UAA) tried. Adidas (OTCMKTS:ADDYY) has tried. And now it appears Lululemon (NASDAQ:LULU) founder Chip Wilson might be trying through his $100 million investment in ANTA Sports (OTCMKTS:ANPDF), the Chinese sports apparel company.
However everyone knows Nike’s swoosh — and Nike founder Phil Knight made sure of that. Now, the company is moving to a direct-to-consumer (DTC) business model that could take it to the next level.
But first, like the rest of corporate America, it’s just trying to get through Covid-19 relatively unscathed. It reported Q4 2020 results on June 25, and they weren’t good. On the top line, revenues fell 38% to $6.31 billion. On the bottom line, it lost 51 cents — well-below the consensus estimate of a 54-cent profit.
However, its digital sales jumped by 79%, excluding currency, with strong online sales across every region. And now, they account for 30% of its overall revenue.
Overall, DTC is the future and Nike is ready. That said, this is an excellent stock for beginners.
Stocks for Beginners to Buy: Electronic Arts (EA)
Video game stocks have gotten a lot of attention during the pandemic. The rationale being that parents and kids cooped up in the house all day would pass the time by playing video games. As the Canadian Broadcasting Corporation pointed out in June, their popularity skyrocketed:
“Game spending totalled a record-breaking $10.5 billion US in April 2020, according to Nielsen’s SuperData. That same month, gamers scrambled like never before to buy hardware, like the new Nintendo Switch, Xbox Ones, and PlayStation 4s, according to NPD Group, an industry tracking firm.”
Now that surges are happening across the country, sales are bound to spike once more. In turn, people like my InvestorPlace colleague Chris Markoch believes it’s a good time to buy Electronic Arts’ stock as a result.
In fact, here is some of what he had to say:
“Sometimes investing is really simple. The current case for Electronic Arts (NASDAQ:EA) is very simple. The company will be releasing the latest version of its popular, and profitable, sports game, Madden 21. And that makes now a great time to buy EA stock.”
I couldn’t agree more, especially when you consider the real thing likely won’t hit the field until 2021. People are starved for football, and Madden 21 will give them that fix.
Also, early in the year, I suggested that the company and its stock looked ready to deliver for shareholders in 2020. And with EA stock up 26.6% YTD, I think it’s just getting started.
But make no mistake, this is a long-term hold. It’s got legs, and that’s part of why it’s a great stock for beginners to buy.
I’ve followed CEO and founder Gary Friedman’s run as the chief executive of what used to be known as Restoration Hardware. He’s done well for himself in the past 19 years since leaving Williams-Sonoma (NYSE:WSM) in 2001, where he was president and chief operating officer. Friedman is now a billionaire, and owns 28% of RH stock — making him a much more significant shareholder than Warren Buffett, who owns 8.9% of its stock.
“There’s been a lot of people that have doubted him, and a lot of people that have been proven wrong. If it’s good enough for Warren Buffett, it should be good enough for most people,” Loop Capital Markets managing director Anthony Chukumba said.
“You don’t have to assume everything is going to go right for them. Let’s just take a lot of that other stuff like RH houses off the table. If they can successfully open those international stores, so RH England, RH London and RH Paris, and they do the type of volume that I think they can do, and continue to open these full design galleries domestically, you can make the argument that the stock is significantly undervalued.”
Moreover, in September 2019, I said, “Friedman continues to drive RH to new heights. As long as he’s CEO, its business will prosper.”
Those same words hold almost a year later. I like this stock, and beginner investors should too.
Stocks for Beginners to Buy: Shopify (SHOP)
I hesitated to add Shopify to my list of stocks for beginners because I wasn’t sure if its brand would resonate with new investors. However, the e-commerce giant’s recent partnership with Walmart (NYSE:WMT) probably caught the attention of a lot of people who usually don’t notice tech stories.
Here in Canada — where I live — Shopify is a national icon. Not because it has a lengthy history, but because it’s a tech company that’s managed to climb to the top of the heap in corporate Canada. Thanks to Nortel and BlackBerry (NYSE:BB), tech’s gotten a bit of a black eye north of the border. But, that’s starting to change with Shopify leading the charge.
In May, Shopify’s market cap eclipsed the Royal Bank of Canada (NYSE:RY), making it the most valuable public company in Canada. As I write this, Shopify has a 13.7 billion CAD lead on Canada’s most valuable bank.
Overall, a total of 34 analysts cover Shopify stock with 11 giving it a buy rating, one an overweight, 19 have it as a hold and three rate it underweight or sell. That said, analysts generally feel that SHOP stock has become overvalued with an average target price of $881.06, 10.5% lower than its current share price.
However, as InvestorPlace’s Chris Lau recently said, “The [Walmart] deal re-affirms Shopify’s dominance in helping eCommerce businesses in the U.S.”
As I’ve said in this very article, sometimes you have to pay more for quality. In turn, Shopify is just that — and its one of the best stocks for beginners to buy.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.