The stock market is a phenomenal way to build wealth, as it allows an investor to place their money in a vehicle that automatically makes more money. At least, for investors who know what they’re doing. A beginning investor may start out lucky or unlucky, but if they focus on great companies, chances are they’ll do just fine over time with their common stock trading.
Looking at the best companies—those that can consistently grow their earnings and cash flow, and who often pay a dividend and provide investors with robust trading volume— a few well (and not-so-well) known names make the list.
Best Stock #1: Microsoft (MSFT)
While Microsoft is best known for the Windows operating system, its growing web-services division, its Xbox video game system and even assets like the social media networking site LinkedIn, it also has an artificial intelligence division. It’s called Microsoft AI.
The lackluster name hides a large platform that provides tools and services for creating AI-run products. It also includes the infrastructure needed to integrate new AI developments with existing ones. Its best-known product in the space is the Azure Machine Learning service.
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While not a huge part of the Microsoft brand as a whole, it’s still a big business in its own right. In 2019, the company made a $1 billion investment in OpenAI to increase its capabilities.
When Microsoft enters into a space, it competes to be one of the top dogs. Its artificial intelligence investments show that it will continue to forge ahead in this space, providing the software and cloud services needed to take AI technologies to the next level.
The company has also become a solid dividend play as well, with regular dividend hikes over the years. In short, this company has changed substantially from the days when it was just known for operating systems, and the company will likely continue to quietly and surprisingly innovate in a number of spaces.
Best Stock #2: Nvidia (NVDA)
Best known for its graphics processing units (GPUs), Nvidia (NVDA) is a huge player in artificial intelligence. Its positioning makes it the top AI stock, which means the company is poised for explosive growth ahead, no matter what the economy does.
GPUs have overtaken traditional computing chips for their faster processing speeds, which has enabled the latest generation of video games, cloud computing needs, and even cryptocurrency mining and even complex pieces of technology like autonomous vehicles!
The beauty of Nvidia’s products are that they can be used in just about any technology that utilizes artificial intelligence. So while the company may not have the profit margin potential of a purely software company, chances are it will continue to be the world leader in the AI space for years to come.
That industry position has allowed NVDA stock to experience explosive growth, even as the rest of the economy has been shaky. Shares are up 140 percent in the past year, about in line with earnings growth of 133 percent. Revenues are up nearly 40 percent, and the company has a solid 28 percent profit margin.
Best Stock #3: Apple (AAPL)
Although it’s the world’s largest company by market cap, $1.5 trillion, Apple (AAPL) is big for a reason.
That’s because the company has made a powerful niche providing consumers with easy-to-use hardware—and the software to back it up. The company’s products, from iPhones to iPods, garner higher prices over the competition because of the better user experience it provides.
More recently, Apple has started to focus on improving its profit margins, and by creating higher-margin content such as Apple TV+. This streaming app doesn’t require a new device that has to go through the high costs of being manufactured, and could make a great company even better. For a company Apple’s size, even a 1 percent improvement can create billions of dollars.
But the company is also a dividend stock. It has a payout ratio of about 24 percent, meaning one of every four dollars in earnings goes back to the company’s shareholders. That’s led to a current dividend yield just under 1 percent.
While that’s not huge, the company’s position ensures that it can dominate consumer tech for decades to come. And the company has a history of growing its payout over time as well.
The sub-niche of dividend growth investments mean that today’s buyers get higher dividends over time simply for owning shares.
In the past five years, Apple has more than doubled its dividend, from $1.58 annually to $3.28 today. Its yield has gone down as shares have continued to grow faster than the dividend payout.
Shares have had a bit of a runup ahead of a planned four-for-one share split. But even after the split, Apple has proven that it can deliver for long into the future.
Best Stock #4: Berkshire Hathaway (BRK-B)
Admittedly, this won’t make a list of income stocks, as shares pay no dividend yield. But for investors looking for safety, the conglomerate managed by super-investor Warren Buffett is a great safe-haven blue chip company.
The biggest reason is that the company has allowed its cash holdings to balloon to over $140 billion, or more than 28 percent of the company’s market cap. That’s a lot of money! And while there’s no dividend, there is a policy in place to buy shares at or under 1.2 times the company’s book value.
Many investors see that as a potential floor under shares. In the second quarter of 2020, Buffett bought back $5.1 billion in shares, a sizeable commitment. Shares still haven’t recovered compared to the overall stock market, so more buybacks may be on deck in the future.
Even better, however, is that shareholders in Berkshire get ownership of hundreds of companies selling everything from paint and carpet to shipping and logistics via trucking and railroads. And there’s a massive stock portfolio that includes a number of blue chip names as well. The best known is Apple, but the large cap bank holdings should also provide some portfolio upside in the second half of the year as well.
This is a somewhat complicated company with a large number of moving parts, but at the end of the day it’s prudently managed with an eye towards grabbing value when that value is apparent. That makes this company a great blue-chip holding that doesn’t quite fit the mold of other companies.
Best Stock #5: Salesforce (CRM)
One of the best-performing tech stocks of recent years, it’s no surprise that Salesforce (CRM) has its own artificial intelligence division as well, making it a solid AI company to boot. Known as Salesforce AI, it integrates with their software-as-a-service (SaaS) suite of products.
Salesforce is a great cloud play, and adding artificial intelligence on top of that could be huge for the already-massive company. Artificial intelligence could allow the company to better serve its customers, perform predictive analytics, and better help out the companies that rely on Salesforce to get its job done.
Specific examples could be in finding ways to improve workflow, determine the effectiveness of team members, and analyze data in ways that may not have been traditionally thought of.
Compared to some of the other big-name companies in the artificial intelligence space, Salesforce hasn’t been as strong a performer. Shares have rallied 18 percent in the past year, amidst a 30 percent rise in revenue.
But the company’s overall profit picture has been muted in the short-term. That makes this an optimal company to buy, as it’s been underperforming other peers in the tech and AI space lately.
Best Stock #6: Home Depot (HD)
Home Depot (HD) is a home improvement retailer with over 2,200 locations in the United States and elsewhere. At a time when may traditional retailers have struggled, Home Depot has managed to maintain a long-term growth trend.
The company boasts a 9.8 percent profit margin, higher than other big-box retailers, particularly grocery stores.
Why? In addition to being a low-cost provider of home improvement supplies, Home Depot also offers tool rentals and installation services. Add-ons such as this are high-profit-margin areas and could help fuel the company’s growth even further, making it a worth buy today even near all-time highs.
That’s also been evident from the company’s dividend. In the past year, the company yet again raised its payout to a full $6 per share from a previous dividend of $5.72 per year. That’s a 4.8 percent increase in the dividend, a very attractive and reasonable growth rate.
At current prices, shares offer a 2.4 percent dividend yield. That yield may fluctuate, but chances are the total dividends per share will continue to increase in time.
That’s because the company has an excellent long-term history of growing its dividend. So while Home Depot will always likely be a low-yield play, it will should offer some dividend growth and capital gains to match.
What’s more, the dividend payout ratio is a mere 55.6 percent of current earnings right now. So there’s clearly some room for the dividend to continue growing over the next few years, even in a sluggish economy.
Best Stock #7: Barrick Gold (GOLD)
Gold has been a better and steadier performer than stocks this year, and one of the best things an investor can do now is to buy a gold-related play as that trend looks likely to continue. The best way to own gold in a rally is with gold mining companies, as they tend to move far higher on a percentage basis than the metal itself.
One of the biggest players in the industry, Barrick Gold (GOLD) explores and produces gold and copper properties throughout the world. The company’s operations span from Canada to Argentina, to Papua New Guinea, and even Mali and the Republic of Congo.
Rising gold prices have been great for the company’s financials. Revenues have increased 30 percent in the past year, and earnings have exploded by 260 percent. And thanks to relatively fixed costs, the rise in gold has led to profit margins rising to over 40 percent.
That’s a trend likely to continue, so shares still look attractive even after rising over 65 percent in the past year. That’s the power of gold mining stocks!
Meanwhile, the company isn’t terribly leveraged, with about $2 billion in net debt on the balance sheet after backing out the $3 billion in cash on the balance sheet.
Some smaller mining plays have a worse balance sheet, which can cause trouble during bear markets. Even though we don’t expect one now, it’s always prudent to plan ahead in a cyclical sector.
Shares of the company pay out a 1.1 percent dividend at the moment as well. The company typically pays out about 10 percent of its revenues as dividends, meaning that as the company’s profitability rises, so will dividends. Conversely, when revenues fall, so will the dividend. But this policy ensures shareholders get paid more when times are good. Right now, times are shaping up to be great.
Best Stock #8: Canopy Growth Corporation (CGC)
With a $6 billion market cap, Canopy Growth Corporation is one of the biggest players in the cannabis space right now. Size tends to confer a sense of safety, and that’s also the case here. Shares of this cannabis play are down only 58 percent in the past year.
That’s where the good news ends. Right now, the company doesn’t make a profit. And its revenue growth was just 14 percent in the past year. In some spaces, that’s a great number. But other companies in the marijuana space have been sporting high-double or even triple-digit levels of growth.
We also like the fact that insiders own 41 percent of shares at Canopy. However, there’s a much smaller short interest here compared to other companies, so the odds of a short squeeze leading shares higher are much lower as well.
Still, the company’s portfolio of various cannabis and hemp products under a large number of brands make this look like an attractive play. It may not have the highest return potential from here, but it’s likely to hold up best in a downturn. That makes it an attractive position to hold in any cannabis portfolio.
What Are the Best Stocks to Invest in Right now?
The best stocks to invest in are companies that have been capable of growing their earnings this year, even in spite of a global pandemic. The list is small, and is somewhat dominated by technology companies, so investors may have to branch out a bit to grow a portfolio of different stocks.
Of those areas, we see technology as some of the best areas to invest in, as these top growth stocks have been able to shake off the worst of the market fears. Of course, given the big market selloff, we’ve also seen a few value stocks pop up as well.
What Should You Invest in Before a Recession?
The traditional investment strategy before a bear markets is to get defensive. From the perspective of a stock advisor, that means focusing more on investing in blue-chip stocks that offer products or services that will remain in high demand no matter how bad the economy gets.
These companies also tend to be strong dividend plays, offering investors some steady income as well. Unlike real estate, these companies are less sensitive to the start of a recession, when valuations plunge rapidly and interest rate fears start to dominate the market. An overly bullish sentiment in the market, but deteriorating fundamentals and weak technical analysis can give a hint as to when a bear market is set to strike.
What Are the Best Stocks to Buy for Beginners?
That depends on what a beginner investor looking to do. If you’re looking to trade with a trading app like Robinhood, or an online brokerage account like TD Ameritrade, you may want to start with an index fund. For the lowest expense ratio, make sure it’s an ETF, not a mutual fund.
Sure, it’ll just follow the market. But it avoids the problem of any single stock going bankrupt, no matter what stock market news sends the market tanking on a given day. That’s a good way to start investing.
For those more interested in day trading stocks, individual stock picks run into thousands of different companies, to say nothing of the number of options trades out there! And that’s if you pick individual stocks, rather than use today’s automated investing tools. Day traders can do quite well, as long as they limit their downside risk.
You’ll want to find some names in a compelling sector of the market with growth ahead of it, consider your risk tolerance, and consider trading penny stocks that are too small to be followed by Wall Street. Of course, even big-name stocks that are widely followed can do well every year too.
What Are the Best Low-Cost Stocks to Buy Now?
Low-cost is a misleading term. A penny stock can be expensive relative to a company’s prospects, and a company trading at $100 per share or higher can be cheap based on its future prospects as well. A stock price needs to be separated from its value.
That’s why so few great companies trade at a low share price. Some companies, like Apple, will occasionally split their shares, essentially cutting the total size of the company into a smaller slice of pie. Other companies, like Berkshire Hathaway, haven’t split their shares, which is why the “A” shares now trade for over $300,000 each!
That said, starting traders may like lower-priced names, as a smaller dollar move can be a larger percentage move. A $10 stock moving $1 moves 10 percent; a $100 stock rising $1 has a 1 percent rally.
That’s why we included Canopy Growth—a name in the beaten-down cannabis space that isn’t too expensive per share.
But the fact of the matter is, if you have to pay up for quality, in the investing world, it’s usually worth it! Best of all, just within the past few years, brokerages have created the ability to buy fractional shares—so you can own a piece of a great company without having to buy an entire share.