As seen with apps like Robinhood, it’s very easy and cheap to invest nowadays. As a result, the markets have seen a big-time return of retail investors. They have actually become a major force. But this raises a question: for new investors, what are the stocks to buy?
Well, as seen with the Reddit forums, there has been a focus on companies that have high levels of short interest. This means investors have wagered that stock prices will drop. But to unwind this, there must be a purchase of the stock.
True, it’s kind of convoluted. But the Reddit investors have used this to their advantage. By taking large positions in highly shorted stocks, there have been so-called “short squeezes.” Although, this mostly causes short-term spikes of volatility — and are really not particularly safe for new investors.
So what are some other options for new investors? Well, I think a focus on blue-chip stocks with solid growth prospects. This is a much better — and safer way — to learn about investing.
And the good news is that there are plenty to blue chips to choose from. Here’s a look at seven:
- Procter & Gamble (NYSE:PG)
- Walt Disney (NYSE:DIS)
- Facebook (NASDAQ:FB)
- Pfizer (NYSE:PFE)
- Bank of America (NYSE:BAC)
- PepsiCo (NASDAQ:PEP)
- Nike (NYSE:NKE)
Stocks To Buy for New Investors: Procter & Gamble (PG)
Over the past few years, Procter & Gamble has been making big changes to its business — in terms of cost cuts and a consolidation of brands. Because of this, the company is much more streamlined.
The Covid-19 pandemic also had a positive impact on the business. With millions of people staying home, there has been demand for household products and healthcare items. In the latest quarter, the organic sales rose by 8% to $19.75 billion and the earnings came to $3.9 billion.
While it looks like the virus will fade during the second half of this year, there have probably been long-term changes to consumer behavior. It seems likely that people will want to focus on cleaning and hygiene products as well as more at-home meals.
In the meantime, Procter & Gamble has been investing heavily in its digital platforms. The e-commerce business is growing at 50% and represents about 14% of overall business on a global basis.
As for PG stock, the dividend yield is at an attractive 2.5%. In fact, the company has raised its dividend for 64 consecutive years. All in all, this is a pretty good option for a new investor.
Walt Disney (DIS)
The novel coronavirus has certainly had a harsh impact on Walt Disney. The theme park business has had to operate at much lower traffic levels. But the movie business has also lagged.
Yet DIS stock has still been able thrive. Since March, the shares have gone from $86 to $186. They are actually close to all-time highs.
The main reason for this: The Disney+ streaming platform. This has been transformative for the company. In the fiscal first quarter, there were more than 21 million new subscribers — bringing the total to about 94.9 million. Keep in mind that the streaming service was launched in November 2019.
At the core of this is the Disney+ platform, which has the benefit of brands like Pixar, Marvel and the Star Wars franchise. But there is also Hulu as well as ESPN+.
True, the streaming service has not made up for the shortfall in revenues. But the growth has been astonishing — and the revenue streams will be recurring. The company’s estimate is that the subscriber base will hit 260 million by 2024.
When it comes to consumer Internet applications, there is always the risk of there being a fad. This was the case, for example, with MySpace.
But when it comes to Facebook, the company’s platform has become a normal part of daily life for more than 2 billion people. The business has also remained in the growth mode. In the most recent quarter, the revenues jumped by 33% to $28 billion and the earnings shot up by 53% to $12.2 billion.
The bulk of the revenues are from advertising. The fact is that Facebook provides unmatched depth when it comes to targeting.
But the company is also looking beyond advertising. To this end, the ecommerce business has been particularly robust as has the VR segment.
As for FB stock, the valuation is fairly reasonable, at least compared to many other red-hot tech companies. Consider that the forward price-to-earnings multiple is about 24X.
Among the list of stocks to buy for new investors, Pfizer has been a disappointment so far. Despite having been the first to launch a Covid-19 vaccine — which relies on the cutting-edge messenger RNA technology — PFE stock has actually dropped $41 to $35 since December.
But this really does look like an opportunity for investors. The vaccine is estimated to generate $15 billion in revenues this year. Even for a company of the scale of Pfizer, this is a huge number!
However, the vaccine will likely not be a one-off either. There will be boosters and ongoing injections to renew it.
In the meantime, Pfizer has a promising pipeline of drugs that should help propel growth. The company has 92 drugs in clinical trials and they target a wide-array of areas like oncology, rare diseases, vaccines, inflammation, anti-invectives and immunology.
Finally, PFE stock is trading at an attractive valuation, with the forward price-to-earnings ratio of 11 and the dividend is 4.4%.
Bank of America (BAC)
Rock-bottom interest rates have put pressure on Bank of America. The reason is that it cannot charge as much on its loans.
But with the economy starting to improve, interest rates have been increasing. And this could be just the start of the gains. Over the years, Bank of America has cut back on its costs and restructured its operations. In other words, there is likely to be higher profits as business starts to improve.
But Bank of America has a diverse set of businesses. For example, the investment banking segment has seen strong growth because of the red-hot IPO market. Trading has also been solid.
Something else to keep in mind: Bank of America has been investing its fintech systems. The result is that nearly 70% of the consumer and wealth management customers have been active during the past year, with about 9 billion logins. The company’s digital assistant, Erica, has also been quite popular. In the quarter, the user base surged by 67% to 17 million.
Regarding BAC stock, the valuation is definitely reasonable. Consider that the forward price-to-earnings multiple is 14X.
PepsiCo is definitely about much more than tasty beverages. Did you know that the company owns Quaker Oats? In fact, this business has seen growth during the pandemic as consumers have been eating breakfast at home.
And yes, PepsiCo owns a line of snacks like Doritos, Lays, Ruffles, Cheetos, Fritos, Tostitos. These have also been in high demand.
In the quarter, revenues grew by nearly 9% to $22.46 billion and earnings came to $1.85 billion. When excluding the impact of acquisitions and spin-offs, the growth was still an impressive 5.7%.
Granted, PEP stock is not necessarily cheap, as the forward price-to-earnings multiple is 22X. Although, in light of the growth, it does make sense for there to be a premium.
When it comes to stocks to buy, it’s usually a good idea to focus on those companies with strong brands. They allow for higher pricing but also protection against competitors.
Of course, one of the world’s most valuable brands is Nike. And as should be no surprise, NKE has been a consistent winner. Last year, the shares were up over 40%.
But keep in mind that Nike is rethinking its strategy. That is, there has been more investments in digital technology, which has accelerated with the pandemic. In the most recent quarter, the revenues from ecommerce soared by 84%.
All in all, he has a smart strategy for transforming the company. As he noted on the latest earnings call: “Digital is now woven into everything we do as a company. It’s how we operate and prioritize, from how we engage with members, to how we operate our supply chain, to how we serve consumers in the marketplace.”
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article except Pfizer.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.