If you’re looking into investing for kids, you might want to get them to read legendary portfolio manager Peter Lynch’s third and final book on the subject.
The duo’s third book was Learn to Earn: A Beginner’s Guide to Investing and Business Basics. It was published in 1995.
As the title suggests, it was geared to a younger audience.
“Mutual-fund superstar Peter Lynch and author John Rothchild explain the basic principles of the stock market and business in an investing guide that will enlighten and entertain anyone who is high-school age or older,” Goodreads writes about the book.
I read every one of Lynch’s books when they first came out. Learn to Earn held its own with Lynch’s other two investment classics. I recommend investors of all ages whip through it.
- Electronic Arts (NASDAQ:EA)
- Starbucks (NASDAQ:SBUX)
- Ferrari (NYSE:RACE)
- Chipotle Mexican Grill (NYSE:CMG)
- Lululemon (NASDAQ:LULU)
- DraftKings (NASDAQ:DKNG)
- Five Below (NASDAQ:FIVE)
So, here are seven stocks to buy to introduce your kids to investing. I guarantee they’ll be able to tell you what each one of these does to make money.
Electronic Arts (EA)
If you know anyone, as I do, who works at the video game company, you know that it’s full of employees who are either younger or young-at-heart.
With franchises like Madden NFL, FIFA, Battlefield, Apex Legends, and many more, Covid-19 provided gaming enthusiasts one more reason to play for hours on end.
As an investment, shareholders have experienced significant long-term returns. Through Feb. 9, EA stock’s annualized total return over the past 10 years is 23.3%, a good 10 percentage points better than the entire U.S. markets.
InvestorPlace’s Faisal Humayun recently recommended EA stock to readers, suggesting its free cash flow generation makes it an excellent investment over the next few quarters.
“It’s worth noting that for Q3 2021, the company launched four new games. In addition, for the first nine months of the fiscal year, ten games have been launched,” Humayun wrote on Feb. 9.
“New launches coupled with the creation of a diversified portfolio of live services are key growth triggers.”
Trading at 7.5x sales, EA is slightly more expensive than its five-year historical average of 6.4x. If your kids hold for 3-5 years, they’ll do just fine.
I’m pretty sure if an alien came down to earth, they would know what Starbucks is all about. And although it’s had its ups and downs in recent years, there aren’t many brands more popular for people of all ages.
As Howard Schultz is known to say, Starbucks is the “third place” for many of its customers. Covid-19 has changed the way it delivers its products, but if there’s one thing I’ve learned about the company over the years, it’s that it knows how to change with the times.
In late January, SBUX stock fell because it reported mixed first-quarter results combined with weak guidance for the second quarter.
On the top line, the company’s same-store sales in the first quarter fell by 5%, 80 basis points worse than analyst expectations. On the bottom line, it earned 61 cents, six cents better than the consensus.
However, I don’t think shareholders can be disappointed at all with the company’s Q2 2021 same-store sales guidance for its China stores. Starbucks expects them to double in the second quarter while U.S. same-store sales are expected to increase by 5-10%.
A more significant near-term concern could be the loss of both its Chief Financial Officer (CFO), Patrick Grismer, who stepped down Feb. 1, and Chief Operating Officer (COO) Roz Brewer is leaving the company at the end of February to become Chief Executive Officer (CEO) of Walgreens Boots Alliance (NASDAQ:WBA).
She’ll be a big loss for CEO Kevin Johnson. Play any weakness in its stock due to these issues to get in at a better price.
Any young investor who watches Formula One or is a sports car fanatic will be all over Big Red. And it doesn’t hurt that Ferrari is one of the most profitable car companies in the world.
On Feb. 2, Ferrari reported its Q4 2020 results. Revenues in the period were 15% to 1.07 billion euros ($1.3 billion), while its net profit was 262 million euros ($316.9 million), 57% higher than a year earlier. Its results were better than the company expected.
In 2021, its guidance calls for revenue of 4.3 billion euros ($5.2 billion) and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of 1.475 billion euros ($1.8 billion) at the midpoint. That’s 29% higher than in 2020.
In December, CEO Louis Camilleri stepped down as the company’s leader. Ferrari Chairman John Elkann is leading the search for the executive’s replacement. There are several leading candidates to replace Camilleri, including Marco Bizzarri, the current CEO of Gucci. Bizzarri was born just 12 miles from Ferrari’s headquarters in Italy.
Since former Fiat Chrysler CEO Sergio Marchionne spun-off Ferrari in October 2015 at $52 a share — Fiat Chrysler got $4 billion from the offering — shareholders have achieved a cumulative return of 301%.
With operating margins of 24% and no evidence the iconic sports car brand is going out of style, shareholders can expect excellent returns over the next five years as a public company.
Chipotle Mexican Grill (CMG)
Chipotle’s long since recovered from its 2015 E. coli scare that sent customers fleeing for several years. They’re back. Billionaire Bill Ackman has an inflated bank account to show for the Mexican fast-casual chain’s resurgence.
Although Ackman reduced his stake in CMG on Jan. 4 to 1.09 million shares, it’s still a $1.7 billion holding for Pershing Square Capital Management. At the end of September, it was tied with Restaurant Brands International (NYSE:QSR) as the investment manager’s second-largest holding behind only Lowe’s (NYSE:LOW), a big underdog bet on the home improvement industry.
I think it’s safe to say that Chipotle today is to young people what McDonald’s was 20 years ago. That go-to place for a quick bite to tide you over when hungry.
The chain has been testing out menu-price increases on its delivery business while cutting the delivery fees. It has found customers’ resistance is “very, very low” to those increases in menu prices.
With CMG shares up 79% over the past 52 weeks, it is priced to perfection at 7.4 times sales, double its five-year average.
Like Starbucks, play any weakness to get in at a better price.
Little by little, Lululemon is building a business that will provide fortress-like growth from brick-and-mortar and digital across regions and categories. It is the next Nike.
Despite store shutdowns in 2020, LULU managed to deliver excellent results during the pandemic, a testament to its commitment to be the best apparel brand in the world.
Of the 34 analysts covering Lululemon, 18 have it as a “buy,” another two “overweight,” 13 rate it a “hold,” and only one has it as a “sell.” As for its target price, the average is $404.14, providing 19% potential upside at current prices.
As CEO Calvin McDonald said recently, the company is in great shape. It’s expected to add 30-35 physical locations to its global footprint of 515 stores in its latest fiscal year.
“As stores reopened and we continued to operate through some of the operating constraints that we were faced with, overall, the business showed great momentum and that continued into Q4,” McDonald said in early February.
“When we initially purchased Mirror, we guided to $150 million in revenue on the year, up from $100 million, which we had previously communicated. Since then, we’ve provided commentary that we are going to come in, in excess to that number,” McDonald said.
As the brand continues to gain momentum, it will be easier to attract top talent to the company, which will strengthen its business and ultimate sales.
With the stock in a bit of a lull heading into 2021, now would be an excellent time for junior to pick up some of its shares.
The other day I got a notification on my phone that The Athletic had partnered with BetMGM to provide sports betting and vital information to its readership.
“BetMGM has pioneered the online gaming industry and as we sought to establish The Athletic as a home for great betting content, we knew there would be no better partner,” said Evan Parker, The Athletic’s General Manager of Content Operations. “As we collaborate on this new venture, we share a joint vision for how to seamlessly blend media, analysis and betting into unique, premium experiences for The Athletic subscribers.”
I don’t think there’s any question that online sports betting is one of the major trends of the 2020s, with DraftKings and others such as BetMGM duking it out for market share.
Many investors are placing bets on who the ultimate winner will be.
While I’m 100% behind DraftKings, others feel Penn National Gaming’s (NASDAQ:PENN) is the better buy due to its $450 million investment in Barstool Sports. That investment was good for a 36% stake. It has the option to raise that to 50%.
Recently, veteran innovation investor Cathie Wood took a stake of 620,300 shares in DraftKings for her ARK Invest Next Generation Internet ETF (NYSEARCA:ARKW). While it’s not a t0p 10 holding — it’s in 43rd position out of 56 holdings — it’s the only online betting stock held by the ETF.
Some people don’t think Cathie Wood’s going to keep up with all the new money flowing into her firm. I beg to differ. Her laser-like focus on innovation and disruption gives her firm a north star on which to make investment decisions.
DraftKings might have profitability issues, but nothing scale won’t solve.
Five Below (FIVE)
There was a time when it looked as though the discount retailer, which focuses on the teen and tween markets, had lost its stuff. Five Below’s stock basically went sideways from September 2018 to December 2019. It then fell to a low of $47.53 in the March 2020 correction, a level it hadn’t seen since 2017.
I originally picked Five Below in September 2019 as one of my nine best stocks to buy for the next decade.
“In today’s retail, you either want to be in the discount or luxury businesses, but not in the deadly middle. Five Below has a plan to grow revenues and earnings by 28% every year for the next five years,” I wrote in 2019.
“In its current fiscal year, its revenues and earnings are expected to grow to $1,89 billion and $3.15, respectively, from $1.56 billion and $2.66 per share.”
Covid-19 or no Covid-19, I felt like its concept had legs to expand to 2,000 stores in the U.S. and elsewhere.
In mid-January, Five Below reported that its holiday sales for the nine-week period from the beginning of November through Jan. 4 grew by 21.1% while it guided for Q4 2020 same-store sales growth of 11%. For the entire year, it expects same-store sales to decline by 6.5%.
Not to worry.
Most analysts are bullish about the stock’s future with 16 buys, six holds, and just one sell. The target price is $206.75, providing a 12-month upside potential of 10%.
Once the country all get vaccinated, expect the same-store sales growth to hit double digits and stay there.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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.