In this article, we discuss the 10 best beginner stocks to buy now. We also discuss the general principles of investing in the US market for beginners.
While investing in the stock market carries risk, the US stock market is generally considered a safe place to invest. It has a long history of growth and has consistently recovered from downturns, including major recessions and financial crises.
Over the last four to five years, the market has been hit by several unexpected downturns, due to a global pandemic and the Russia-Ukraine war, among other things, that crippled the global economy. However, the US broader market recovered swiftly and has been performing well since 2023. It is nearly 19% up year-to-date, as of August 23.
Nevertheless, it is still a complicated place for beginners and they should consider investing in shares of well-established companies with a history of stable performance and reliability. These stocks typically belong to large, financially sound companies that operate in diverse industries, such as technology, consumer goods, and healthcare.
Additionally, beginners can also look into index funds or exchange-traded funds (ETFs) that track major market indices like the S&P 500. These options offer diversification, which reduces the risk associated with investing in individual stocks while still providing exposure to the broader market’s potential gains. Investing in such well-established and diversified assets can help beginners build confidence and knowledge in the stock market. For such ETFs, you can check out our article on the best large-cap growth ETFs.
Opportunities and Caution for New Investors Due to Consumer Behaviour
On August 16, Melissa Minkow, director of retail strategy at CI&T, discussed the latest trends in U.S. consumer spending in a CNBC interview. Despite concerns about a potential recession, Minkow believes we might have avoided one. She pointed out that although consumers may feel like they are in a recession, their spending habits show otherwise. They continue to spend, especially when presented with discounts. Retailers have adapted by offering more targeted promotions this year, which has helped maintain consumer spending despite previous challenges like the pandemic and supply chain issues.
Minkow also noted that the effectiveness of promotions can vary across sectors. For example, quick-service restaurants like McDonald’s and Starbucks haven’t seen the same benefits from discounts as other retailers, partly because consumers may opt for more cost-effective alternatives like home-cooked meals. Additionally, brands that are already positioned as discount options might not see as much impact from promotions. However, retailers who offer significant discounts on desirable items can attract cost-conscious shoppers and increase sales volume, potentially offsetting the impact on profit margins.
For beginner investors in the stock market, the current retail sector dynamics offer both opportunities and challenges. The resilience of consumer spending, even in the face of economic uncertainty, suggests that certain sectors and companies could continue to perform well, especially those that effectively use promotions to drive sales. Retailers offering targeted discounts on popular items may attract more customers, boosting their sales volumes, which could lead to positive stock performance.
However, beginner investors should also be cautious. Not all companies benefit equally from promotions, as seen with the restaurant and food segment, where discounts haven’t significantly improved earnings. This highlights the importance of understanding the specific business models and market positioning of companies before investing.
The Market is Healthy but Caution is Advised
The U.S. stocks have seen a significant surge over the last few quarters, which are mainly driven by strong economic data and optimism about a potential soft landing for the U.S. economy. However, experts remain cautious as we discussed in our best defensive stocks article.
In the article, we discussed the J.P. Morgan report that noted the market’s heavy reliance on large, high-quality tech and AI companies, and it warned that maintaining this momentum could be challenging due to high valuations and potential market volatility. Here is an excerpt from the article:
“According to a July report by J.P Morgan, recent market trends have benefited large, high-quality companies, especially in tech and AI, which have resulted in high market concentration. However, maintaining this momentum in the second half of 2024 could be difficult due to high valuations and investor positioning. The report says that while U.S. market volatility is currently low, it could rise if conditions change.
According to Bruce Kasman, global growth is steady at 2.4%, with improved recoveries in Western Europe and emerging markets, along with a rebound in the manufacturing sector. Despite this, core global inflation is projected to remain around 3% in 2024, which could limit the potential for policy easing. Kasman warned that achieving inflation control and rate normalization might weaken demand and could interact with political factors to cause further inflation and central bank tightening.”
With that in mind, we discuss the 10 best beginner stocks to buy now.
10 Best Beginner Stocks To Buy Now
Our Methodology
For this article, we used stock screeners to identify large to mega-cap stocks with a revenue compound annual growth rate of at least 5% over the last 10 years. The companies we chose are well-known, well-established, fundamentally strong, and some also pay regular dividends. We listed the companies in ascending order of their hedge fund sentiment as of the second quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Beginner Stocks To Buy Now
10. FedEx Corporation (NYSE:FDX)
Number of Hedge Fund Holders: 59
10-year Revenue CAGR: 6.77%
FedEx Corporation (NYSE:FDX) is a Tennessee-based multinational logistics and transportation company. Over time, the company has broadened its scope to offer a wide range of transportation, e-commerce, and business services, which has established it as a vital component of global supply chain management. The company operates in over 220 countries and territories.
The company runs through several major segments, each concentrating on different aspects of logistics and transportation. The FedEx Express segment is its core service, providing time-critical air and ground express delivery for packages and freight. The FedEx Ground segment focuses on small-package ground shipping, while the FedEx Freight segment specializes in less-than-truckload (LTL) freight services, catering to businesses that need to transport heavy or bulky goods.
Additionally, the FedEx Services segment supports the company’s various divisions by offering sales, marketing, information technology, and customer service functions. The company also provides a range of supplementary services, including supply chain management, customs brokerage, business solutions, and more.
In Q2, 59 hedge funds held stakes in FedEx (NYSE:FDX), with positions worth $2.18 billion. As of the second quarter, the Bill & Melinda Gates Foundation Trust is the most significant shareholder in the company and has a position worth $460.063 billion. It is one of the best beginner stocks to buy now.
FedEx (NYSE:FDX) has demonstrated strong financial performance and operational efficiency, establishing a solid case for its future growth. In the fiscal fourth quarter, the company reported earnings of $5.41 per share on revenue of $22.1 billion, surpassing Wall Street’s expectations. Looking ahead, the company’s management is optimistic about continuing this positive trend into fiscal 2025. They anticipate revenue growth in the low- to mid-single-digit range, driven partly by an uptick in package delivery volumes. The company’s earnings guidance for the upcoming fiscal year ranges between $20 and $22 per share, which indicates confidence in maintaining strong performance.
The company has also been effective in managing costs, which has supported its profitability even during slow demand growth. It reduced structural costs by $1.8 billion in 2024, leading to improved adjusted operating margins, which rose from 6% in 2023 to 7.1% in 2024. Additionally, full-year adjusted operating income increased from $5.37 billion to $6.24 billion.
The company’s focus on improving its network flexibility and efficiency, alongside a substantial $5 billion share buyback plan announced in March, highlights its commitment to delivering value to shareholders. It is also evaluating its FedEx Freight division, the largest less-than-truckload operation in the U.S., which could further optimize its operations. With these efforts, the company is well-positioned to continue its performance and navigate future market conditions successfully.
Longleaf Partners, managed by Southeastern Asset Management, stated the following regarding FedEx Corporation (NYSE:FDX) in its Q2 2024 investor letter:
“FedEx Corporation (NYSE:FDX) – Global logistics company FedEx was the top contributor for the quarter. Late in the quarter, FedEx reported strong fiscal year results, highlighting a year of strong cost management in a challenging revenue environment. Earnings per share (EPS) increased by 19%, and reduced capital expenditures narrowed the gap between EPS and FCF per share. With the increase in FCF, the company has become a significant share repurchaser, which is a welcome change. The company also announced a strategic review of their Freight segment. Our appraisal has long accounted for the underappreciated value in FedEx’s less-than-truckload operations. A potential spin-off or sale could unlock substantial value, as comparable companies like Old Dominion trade at significantly higher multiples on revenue, cash flow, and earnings than those applied to FedEx Freight by the market and our appraisal today.”
9. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 71
10-year Revenue CAGR: 8.75%
Costco Wholesale Corporation (NASDAQ:COST) operates as a membership-only big-box warehouse club. It is one of the largest and most influential retailers in the world, which makes it one of the best beginner stocks to buy. As of August 2024, Costco manages 884 warehouses worldwide, with a substantial presence in the United States and Canada, among other international locations.
Costco’s (NASDAQ:COST) business model is unique as it focuses on low pricing, limited selection, and high-volume sales. The company operates with a lean cost structure, and its profitability is largely dependent on membership fees. The strict markup policy, where no regular item is marked up more than 14% to 15%, reinforces its commitment to delivering value to its members. This model has proven successful and allows the company to generate significant revenue and maintain a loyal customer base, which reached 132 million members in 2024.
Despite competition from other membership-based retailers like Sam’s Club and BJ’s Wholesale Club, Costco’s (NASDAQ:COST) emphasis on quality, price, and customer satisfaction has positioned it as a leader in the retail industry.
In the second quarter, Costco’s (NASDAQ:COST) shares were held by 71 hedge funds at a combined value of $5.95 billion. This is up from 65 hedge funds with shares worth $4.6 billion in the previous quarter. Fisher Asset Management is the most prominent shareholder of the company with nearly 3 million shares worth $2.5 billion.
ClearBridge Investments stated the following regarding Costco Wholesale Corporation (NASDAQ:COST) in its Q2 2024 investor letter:
“Consumer staples holdings were also standouts in the quarter, such as Costco Wholesale Corporation (NASDAQ:COST), which continues to execute well and delivered better than expected earnings, helped by strong traffic driving better expense leverage. Customers also looked to be shifting toward more discretionary purchases.”
8. Thermo Fisher Scientific Inc. (NYSE:TMO)
Number of Hedge Fund Holders: 108
10-year Revenue CAGR: 11.02%
Thermo Fisher Scientific Inc. (NYSE:TMO) is a global leader in life sciences and clinical research. The company was established in 2006 through the merger of Thermo Electron and Fisher Scientific, two well-respected names in the scientific community.
Since its formation, the company has grown significantly, largely through a series of strategic acquisitions, including Life Technologies, Affymetrix, and PPD, among others. These acquisitions have broadened its capabilities, which allow the company to offer a wide range of products and services that support the pharmaceutical, biotechnology, healthcare, and industrial sectors.
Thermo Fisher’s (NYSE:TMO) extensive portfolio includes advanced analytical instruments, laboratory equipment, specialty diagnostics, and clinical development solutions. The company also provides critical services in the pharmaceutical and biotechnology industries, such as contract research and manufacturing.
As one of the best beginner stocks, Thermo Fisher (NYSE:TMO) is already one of the well-established names in the market. The company management’s statement at its latest earnings call makes a compelling case for it. Despite challenges in the pharma and biotech sector due to the runoff in vaccine and therapy revenues, other areas like biosciences, clinical research, electron microscopy, and transplant diagnostics saw strong performance.
Thermo Fisher (NYSE:TMO) launched several innovative products in the quarter, including the Thermo Scientific Stellar Mass Spectrometer and the Thermo Scientific Orbitrap Ascend Tribrid Mass Spectrometer, which further strengthened the company’s leadership in analytical instruments. Mass spectrometers are analytical instruments used to measure the mass-to-charge ratio of ions.
As of the second quarter, 108 hedge funds had stakes worth $8.56 billion in Thermo Fisher (NYSE:TMO). Cryder Capital is the most prominent shareholder of the company with 290,353 shares worth $160.565 million, as of June 30.
