With another round of funding, Robinhood has seen its valuation surge to $11.2 billion. Its not surprising considering the fact that the company added 3 million new customer accounts at the beginning of fiscal year 2020. As markets continue to trade near all-time-highs, retail investor interest remains elevated. Capital preservation is one of the most important objectives when selecting stocks to buy for beginners.
Initial losses might scare new investors from markets that have consistently been able to beat most asset classes in the long term. Even if there is a correction, it would provide an opportunity for entry for the long term.
Laura Gonzalez, Ph.D., associate professor of Finance at California State University in Long Beach, outlined the strategy for beginners.
“Beginning investors need to keep in mind that the opportunity to enter the financial markets is based on institutional and regulatory protections, as well as the need to time the entry,” she said. “The goal is to buy low, minimize fees and let long term diversified investments take care of market fluctuations. There is no need to invest large amounts. The key is to start small, strategically, and don’t wait until middle age.”
I see the keywords as attractive valuations, long-term exposure and a diversified portfolio.
Let’s look at four stocks to buy for beginners. These names are worth holding in the core portfolio for the next few years.
- Costco Wholesale (NASDAQ:COST)
- Apple (NASDAQ:AAPL)
- Lockheed Martin (NYSE:LMT)
- AstraZeneca PLC (NYSE:AZN)
Stocks to Buy for Beginners: Costco Wholesale (COST)
In the list of stocks to buy for beginners, COST stock is among my top picks. The stock has a beta of 0.69 and is a perfect defensive stock for beginners. In addition, the company currently has a dividend payout of $2.80 per share and dividends are likely to increase in the coming years.
In terms of business, Costco currently has 55.8 million households as members. Further, the company generated $3.5 billion in cash fees in the last 12-months. With 91% renewal rate in U.S. and Canada, there is clear cash-flow visibility.
Another important growth factor is that Costco started building a presence in China. The company has ample financial headroom for aggressive growth. In the coming years, cash fees should continue to trend higher.
The company’s focus on e-commerce is also delivering results. For the 48-weeks ended Aug. 2, the company reported 46.1% growth in e-commerce sales on a year-over-year basis. With all these positives, COST stock has been on an uptrend.
I believe the positive momentum is likely to sustain and beginners can consider gradual exposure to the stock.
AAPL stock is another name that should be among the top stocks to buy for beginners. The stock has surged by 146% in the last year, but I believe that there is more juice in the rally.
Recently, Wedbush analyst Daniel Ives raised the stock’s target price to $600 with a bull case target price of $700. With AAPL stock currently trading around $500, there is ample scope for upside.
The first reason to like Apple is that the company is a cash-flow machine. For the first nine months of the year, the company generated operating cash flow of $60 billion. The company also has nearly $200 billion in cash and equivalents. This leaves ample scope for shareholder value creation through dividends and share repurchase.
In addition, the company’s financial flexibility allows investment in innovation and inorganic growth. Recently, the company acquired a virtual reality firm that creates immersive Zoom calls. Apple is also more diversified with strong growth in services and wearable segment of business.
Overall, with healthy earnings growth, focus on innovation and continued shareholder value creation, AAPL stock is worth holding.
Lockheed Martin (LMT)
LMT stock is another name that has a beta of less than one. In addition, the company offers a dividend of about $9.60. With the defense sector immune to cyclical swings in the economy, Lockheed Martin is a core portfolio stock.
As of second quarter of 2020, Lockheed Martin reported an order backlog of $150 billion. Recently, the company won a $62 billion contract for F-16 foreign military sales. As the order backlog swells, the company has clear revenue and cash-flow visibility. The recent foreign military sales contract is also significant as the company’s sales diversify beyond the United States.
I also like the fact that LMT stock is currently trading at a price-earnings-ratio of 16.4. With the S&P 500 Index trading at a P/E of 29.8, the stock is relatively attractive. Further, the stock has been in an extended consolidation zone with returns of 4.8% in the last one year. I would not be surprised if there is a break-out on the upside.
AstraZeneca PLC (AZN)
AZN stock is another name that has a significantly low beta of 0.26 and is worth considering for beginners. The stock also pays an annual dividend of $1.40. I also like AZN stock as the company gives new investors exposure to the pharmaceuticals sector, which has been in limelight since the novel coronavirus pandemic.
Besides being a front-runner in the race for the Covid-19 vaccine, there are other reasons to like AstraZeneca from a business perspective. The company has a strong late-stage pipeline of drugs and that will translate into strong growth in the coming years.
Its worth noting that the new medicines segment delivered 45% growth in the first half of 2020 with the oncology division delivering 31% growth. If the development remains positive related to the Covid-19 vaccine, earnings growth can accelerate in the coming year.
Overall AZN stock is worth holding in the portfolio and offers protection against market volatility besides growth visibility. I also expect the company’s dividend to increase in the coming years.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector. As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.