For those beginning to invest, it may be hard to figure out which stocks to buy. Some retail investors have made fast gains dabbling in risky stocks. We’ve seen this play out in the meme stock madness experienced in January and February. But, while situations like Gamestop (NYSE:GME) have been lucrative for those who got in early, many have seen big losses getting late into such risky plays.
With trading apps like Robinhood, aggressive investing may be more accessible than it’s been in previous generations. But, more akin to gambling than investing, this may not be the best approach if you’re just starting out.
Which approach should you take instead? Consider building your first portfolio with higher-quality stocks. Sure, you likely won’t see epic gains, like the ones we’ve seen some realize over the past few months. Yet, in terms of long-term appreciation, weighed against risk, focusing on less volatile names may be the way to go.
So, what are some great stocks to buy for your first portfolio? Start off with these nine high-quality names:
- Apple (NASDAQ:AAPL)
- Bank of America (NYSE:BAC)
- Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL)
- Johnson & Johnson (NYSE:JNJ)
- Lockheed Martin (NYSE:LMT)
- Mastercard (NYSE:MA)
- 3M (NYSE:MMM)
- Procter & Gamble (NYSE:PG)
- Target Corporation (NYSE:TGT)
Stocks to Buy: Apple (AAPL)
There are pros and cons when it comes to “investing in what you know.” But, while buying shares in ubiquitous companies isn’t the right move 100% of the time, this popular investing adage may make sense when it comes to AAPL stock.
How so? First, while it’s considered a new-economy company, it fits much of the criteria for a blue-chip stock. I’m talking about its strong balance sheet, substantial economic moat and high profit margins. With the popularity of tech stocks during the novel coronavirus pandemic, valuation has become higher in the past year.
In prior years, Apple stock traded for a price-to-earnings (P/E) ratio of 15x-20x. But, with investors diving into it in the months following the initial outbreak, its valuation has stretched to around 28x. This may be a concern for some. Yet, even as interest rates are trending up once again, it may be able to maintain its current multiple.
Investors in the past may have seen epic gains from holding AAPL stock. With the company now worth more than $1 trillion, don’t expect that to happen going forward. But, with its strong fundamentals, and potential to grow at a moderate clip, consider this a stock to buy for comparatively more modest, yet still solid, long-term returns.
Bank of America (BAC)
Covid-19 and its aftermath wreaked havoc on Bank of America stock last spring. Yet, as investors digested the economic uncertainty, and subsequent slashing of interest rates, the big bank stock has made a stunning recovery.
In the past 12 months, BAC stock has more than doubled. Partially due to recovery optimism. But also, the prospect of interest rates moving back up has boosted the stock as well. Both factors will help this stock’s earnings continue to return to normal.
With shares now back above where they were before last year’s maelstrom, some may believe its too late to dive into this opportunity. Yet, as things recover, and Bank of America’s earnings rebound, expect shares to at least hold steady at today’s levels. And, once the Federal Reserve further relaxes restrictions on bank stock buybacks, this major financial player will have again another option to help move the needle.
Again, just like with Apple, don’t expect jaw-dropping returns going forward for BAC stock. But, when it comes to a high-quality name that will produce strong returns in the long run, consider this to be another great lower-risk option.
Alphabet (GOOG, GOOGL)
Alphabet, parent company of Google, YouTube, and other online properties, is what I like to call a “Nasdaq blue chip.” With its high profit margins, and cash-rich balance sheet, this is another big tech name with envious fundamentals. But, just because it’s practically a blue-chip doesn’t mean it’s at risk of becoming a tech dinosaur, like we’ve seen happen to other dominant tech companies over time.
Why? Through its “other bets” unit, GOOG stock offers exposure to many early-stage investments with big potential to pay off down the road. These include autonomous vehicle play Waymo, and biotech research firm Calico Labs.
Sure, Alphabet stock has moved up substantially, thanks to its pandemic tailwinds. Shares are up 94.3% from last March, when markets hit their headline-making lows. But, even at prices around $2,050 per share, this other trillion dollar-plus stock (market capitalization of $1.37 trillion) could still deliver solid returns in the coming years.
If tech stocks see another correction, you may experience some volatility in the short-term. But, if you’re looking for a high-quality tech name, with some exposure to megatrends like autonomous vehicles, consider this to be a great stock to buy.
Stocks to Buy: Johnson & Johnson (JNJ)
Pharmaceutical giant Johnson & Johnson may be making headlines with its Covid-19 vaccine. But, the appeal of this company as an investment opportunity goes beyond its current developments.
As InvestorPlace’s Faisal Humayun broke it down March 12, this is one of the best healthcare stocks to buy and hold for the long term. Between its reasonable valuation (forward P/E of 16.9x), solid dividend yield (2.5%), and strong cash-flow generating abilities, this blue-chip stock is a great choice for new investors.
Speaking of the dividend, it’s important to note the status of JNJ stock as a dividend aristocrat. What’s that? This term refers to a stock that’s raised its dividend for 25 or more consecutive years. And, raising its payout 58 years in a row, this is a stock that definitely belongs in that category.
Its dividend increases each year have been moderate (average growth of 6.1% over the past five years). But, this can really compound over time. Another great option for those new to investing, consider this a lower-risk name, with the potential to reward investors (via stock price appreciation and dividends) far into the future.
Lockheed Martin (LMT)
Dividend stocks are great opportunities for new investors. And, defense contracting name LMT stock fits well into that category. As I discussed back in February, it not only pays out a solid dividend. Employing other financial methods to put points into its share price, like stock buybacks, this has been a large-cap stock focused on maximizing shareholder value.
How about its underlying business? The new presidential administration may create some challenges. It’s already done so, with its decision not to increase the defense budget this year. Related to this is talk of the U.S. Air Force cutting back on its purchases of Lockheed Martin’s F-35 fighter jets.
It’s understandable to be concerned about this negatively affecting results. But, based on analyst projections, recent developments shouldn’t affect Lockheed’s top and bottom lines. Revenues and earnings are set to rise by mid-single digits in the coming year.
Sure, this may point to the stock making modest gains from here. But, for new investors not looking to take on big risks, this may be a stock to consider. Add in the dividend, the payout rate of which has grown nearly 10% per year over the past five years, LMT stock could deliver solid returns over a long timeframe.
Trading for 44.2x forward earnings, MA stock may look richly priced at first glance. But, with its high profit margins, this well-known credit card processing company may have enough at play to justify its current valuation.
Especially, given that its earnings are set to grow nearly 30% in 2022, thanks to the post-pandemic recovery. Some may think that “old school” payment companies like Mastercard, and its longstanding rival, Visa (NYSE:V), are at risk of being disrupted by more fintech names like PayPal (NASDAQ:PYPL) and Square (NYSE:SQ).
But, as InvestorPlace’s Joanna Makris wrote March 17, this concern may be overblown. Instead, this legacy payments company offers investors high exposure to the digital payments trends. Yet, at the same time, it trades at a more reasonable valuation than PayPal or Square.
So, why is this a great stock for new investors? With Mastercard, you get the best of both worlds. On one hand, it’s a blue-chip tier stock, with strong fundamentals and earnings stability. On the other hand, with the rise of digital payments, there’s a secular growth driver that could result in further fantastic returns over the long-run.
Stocks to Buy: 3M (MMM)
When it comes to high-quality stocks to buy, 3M checks off many of the boxes. Firstly, it’s an established company, with relatively stable financial results and a solid balance sheet. Secondly, it’s a dividend aristocrat, with a great yield (3.1%), and a 62-year track record of raising its payout. Thirdly, it’s what’s known as a defensive stock.
In other words, it’s a great safe harbor stock to buy in times of market uncertainty. And, while market uncertainty has dissipated by the runaway bull market, a correction could still be around the corner. High-flying names could take a hit. But, if such a scenario plays out, investors will flock back to more stable names like this industrial conglomerate.
Admittedly, while it is a safe harbor, there are some risks with MMM stock. Low growth has been an issue. This was a top concern before the outbreak. But, with sell-side analysts upping their earnings per share projections, this may not longer be as much of a problem.
3M stock may have rallied nearly 60% in the past year. Yet, still below the prices it commanded in the late-2010s, a return to moderate earnings growth, coupled with its reasonable valuation (forward P/E of 19.6x), may convince more investors to dive back into it.
Procter & Gamble (PG)
The makers of household products like Crest toothpaste, Gillette razors, and Tide laundry detergent, Procter & Gamble fits well in the buy-what-you-know category of investing. But, this isn’t the only reason why new investors should consider this a great stock to buy.
PG stock is another blue-chip name. High profit margins, strong balance sheet, dividend aristocrat status. A low-risk opportunity that could continue to deliver solid returns for investors. Yet, while this could be considered a stock for all markets (bull and bear), I’ll concede there is a factor to watch out for when investing in it in the near term.
Thanks to stockpiling in the early stages of the pandemic, Procter & Gamble rebounded much more quickly than the stock market in general. Shares have traded sideways since the summer, as investors have turned to stocks that stand to recover from the outbreak. This could affect performance over the next year, as recovery plays continue to be one of the hottest investing trends in town.
Yet, now, as shares hold steady, may be the best time for new investors to enter a long-term position. A pullback is possible. But, with shares trading at a fair, but not overvalued forward earnings multiple (23.3x), downside may be limited from here.
Target Corporation (TGT)
Big-box retail plays like TGT stock are another great area for new investors. A few years back, sentiment had it that bricks-and-mortar chains were going to get fully disrupted by e-commerce pure plays like Amazon (NASDAQ:AMZN).
But, smartly pivoting toward an omnichannel model (in-store and online retail) at the right time (just before Covid-19), this popular retailer may have saved itself from irrelevance. Coupled with the temporary boost due to the pandemic (big box stores were some of the only retailers able to remain open during lockdowns), and it’s no shock shares not only recovered from their coronavirus-crash losses, but now trade at all-time highs.
Yet, even after crushing it over the past year, new investors may find it to be a worthwhile stock to own. Even as it holds steady at around $190 per share. Why? In a recent analyst note, Guggenheim’s Robert Drbul made the case why TGT stock has more room to run.
Upgrading shares to a “buy” rating, and giving them a price target of $200 per share, the analyst cited the company’s ability to hold onto its surging market share post-pandemic, its partnerships with major brands, and the overall prospects of consumer spending growth in 2021 as his rationale. Add in its other attributes (namely its status as a defense stock), and this remains one of the best stocks to buy if you’re a new investor.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.