In this article, we’re going to talk about the 8 best stocks to buy for beginners right now.
Where are Mega Caps Headed?
A few recent discussions have indicated that the markets may be entering a choppier phase. While the current trend appears strong and many stocks are participating positively, there are concerns about potential challenges if key players falter. Sentiment in the market seems overly bullish. This environment makes it difficult to maintain overbought conditions across various timeframes. Katie Stockton, Fairlead Strategies founder, recently appeared on CNBC to discuss her neutral stance regarding the current bull markets. We covered this discussion in much more detail in our article about the 7 Best American Stocks To Buy and Hold in 2024. Here’s an excerpt from that conversation:
“…She highlighted that sentiment appears overly bullish or greedy, as evidenced by the Fear and Greed Index reaching an extreme level of 5%. This situation makes it challenging for the market to sustain overbought conditions, which are prevalent across various timeframes.
Stockton anticipates a pullback or possibly a more significant corrective phase in the fourth quarter for the S&P 500, suggesting that this could mark the beginning of a range-bound environment. She pointed to indicators such as the VIX, which has entered a new higher volatility cycle, and mentioned signs of long-term exhaustion indicated by the DeMark indicators, levels not seen collectively since late 2021. While this does not necessarily signal an impending bear market, it does enhance the likelihood of experiencing a choppier trading environment.”
The overall focus should be on maintaining balance amid prevailing uncertainties in both equity and bond markets. As conditions evolve, investors are encouraged to stay informed and consider potential opportunities while navigating the changing landscape. On October 10 earlier, Malcolm Ethridge, Capital Area Planning Group managing partner, appeared on CNBC’s ‘Closing Bell’ to discuss markets, particularly mega-cap stocks and where they’re headed.
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Stocks have risen by 60% since the start of the current bull market. As this bull market approaches its second anniversary on Saturday, Malcolm Ethridge was asked how long it might continue. He expressed optimism about the staying power of AI, noting that while last year’s focus was on Microsoft, this year’s spotlight is on NVIDIA. He emphasized the importance of identifying which stock will lead the AI arms race in the coming year, suggesting that the emphasis should be on growth potential rather than merely questioning if the market will continue to rise.
Ethridge conveyed his belief that mega-cap stocks will continue to drive market performance, although not at the same pace as in previous years. He pointed out that the broadening effect of AI is impacting various sectors such as materials and manufacturing, driven by increased demands on infrastructure.
When discussing the resilience of the two-year-old bull market, Ethridge highlighted that rising interest rates were initially expected to negatively impact market performance. However, despite facing historically high rates, the market has thrived. He noted that many leading companies, including some of the MAG7, have substantial cash reserves and are not reliant on borrowing to fund growth. This financial strength allows them to invest in AI technologies without being overly concerned about the Federal Reserve’s policies. Ethridge acknowledged that we are currently in an easing cycle with the Fed cutting rates. This environment enables companies that previously could not invest in growth to borrow and invest in AI, potentially fueling a second wave of the AI revolution.
The conversation then shifted to expectations regarding future Fed rate cuts. Ethridge suggested that investors should prepare for a slower pace of rate cuts than previously anticipated. While a 25 basis point cut may occur at the next meeting, he indicated that there could be a prolonged period of stability afterward rather than a rapid series of cuts. He also emphasized the need to reassess historical expectations regarding interest rates and market dynamics. The unique circumstances surrounding the COVID-19 pandemic have significantly altered traditional economic indicators and relationships. For instance, low unemployment alongside high interest rates has not historically coexisted without negatively impacting markets.
Ethridge concluded by discussing how elevated interest rates could affect stock valuations. He cautioned that if rates remain high, earnings must meet elevated expectations to justify current stock prices. This scenario raises questions about whether investors may need to recalibrate their expectations for future earnings growth in light of persistent inflationary pressures.
He highlights that established companies are likely to drive market performance, offering safer investment opportunities for newcomers. Ethridge’s observations about the resilience of the bull market, despite rising interest rates, suggest that stocks with strong fundamentals and cash reserves are well-positioned for growth. Additionally, his advice to maintain balance amid uncertainties encourages beginner investors to adopt a diversified strategy while focusing on long-term growth potential, helping them make informed decisions in a changing economic landscape. With that, we’re here with a list of the 8 best stocks to buy for beginners right now.
Methodology
We sifted through online rankings and internet lists to compile a list of the top 20 blue chip stocks. We then selected 8 mature companies with a 10-year revenue compound annual growth rate of at least 7% (high single digits to mid-teens is our definition of a mature and reliable grower), which were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
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).
8 Best Stocks To Buy For Beginners Right Now
8. Costco Wholesale Corporation (NASDAQ:COST)
10-Year Revenue CAGR: 8.49%
Number of Hedge Fund Holders: 71
Costco Wholesale Corporation (NASDAQ:COST) operates a chain of membership-only big-box warehouse club retail stores. It offers a wide variety of products at bulk prices, including groceries, electronics, and household goods among others. Members pay an annual fee to shop at here and enjoy exclusive discounts, savings, and services like pharmacy, optical, and auto programs.
This is one of the few companies that achieved $3 billion in sales within its first 6 years of operation. For the fourth quarter of fiscal 2024, it reported $79.7 billion in sales, a 0.96% increase year-over-year, and earned $5.15 per share. For the full fiscal 2024, it generated $249.6 billion in revenue, up 5%. Investors appreciate the company’s consistent growth. It plans to open 12 more locations by the end of 2024, reaching a total of 30 new locations this calendar year.
International sales grew by 5.7%, while e-commerce sales surged by 18.9%. Membership growth remained steady, with a 7.3% increase in paid household members and a 7% increase in cardholders. Renewal rates declined slightly due to a recent promotion but remained strong overall.
The company’s ancillary businesses and digital initiatives continue to drive growth. Pharmacy sales increased significantly due to higher prescription fills, while optical sales grew as more members took advantage of deals on frames and sunglasses. Gas sales were slightly negative due to lower prices but were partially offset by increased volume. Inflation remained relatively flat overall, with slight inflation in food and sundries offsetting deflation in non-foods. It lowered prices on some Kirkland Signature products while reducing packaging waste.
The company presents a compelling investment opportunity. Costco Wholesale Corporation’s (NASDAQ:COST) membership model, coupled with its competitive pricing and efficient supply chain, ensures a loyal customer base and strong growth potential.
Parnassus Core Equity Fund stated the following regarding Costco Wholesale Corporation (NASDAQ:COST) in its Q2 2024 investor letter:
“Costco Wholesale Corporation (NASDAQ:COST) posted strong results for the third quarter of fiscal 2024, with a robust increase in net sales and strength in both U.S. and international markets. Bucking the trend of weakening demand for discretionary items that has pressured many other retailers, Costco reported growth in nonfood sales.”
7. UnitedHealth Group Inc. (NYSE:UNH)
10-Year Revenue CAGR: 11.88%
Number of Hedge Fund Holders: 114
UnitedHealth Group Inc. (NYSE:UNH) is a multinational health insurance and services company that operates through 3 main segments: Optum, UnitedHealthcare, and Medicare Advantage. Optum focuses on health services, including pharmacy benefits management, health analytics, and health-based technologies. It offers a variety of commercial health insurance plans, as well as Medicare and Medicaid plans. Medicare Advantage is a program that offers additional benefits to Medicare beneficiaries.
The company just launched a new national gold card program aimed at reducing administrative burdens and improving care quality. This program will reduce the number of prior authorizations by 500,000 annually for qualified in-network providers.
AI is also playing a significant role in enhancing efficiency and improving patient care. Advanced practice clinicians are using AI to summarize patient histories, freeing up time for more direct patient care. Nurses are using GenAI to review documentation more efficiently, saving time and improving service. It’s also used to power consumer interactions and provider searches, allowing advocates to focus on more complex inquiries and improve the consumer experience.
In the third quarter of 2024, it made $100.82 billion in revenue, recording a 9.16% improvement as compared to the year-ago period. OptumRx revenues grew by $5 billion to over $34 billion driven by strength in the pharmacy care offerings, as well as growth in pharmacy benefits management from new customers and expanding specialty services. OptumInsight revenues were stable, approaching $5 billion and the ~$33 billion revenue backlog increased by more than $1 billion from last year.
UnitedHealth Group Inc. (NYSE:UNH) is well-positioned for continued growth. The company’s focus on quality, consumer value, and value-based care, combined with its innovative use of technology, makes it a strong investment choice in the healthcare sector.
Invesco Growth and Income Fund stated the following regarding UnitedHealth Group Incorporated (NYSE:UNH) in its Q2 2024 investor letter:
“UnitedHealth Group Incorporated (NYSE:UNH): Like many managed care providers, United Health has come under pressure from rising medical costs and higher-than-expected utilization. The stock is currently undervalued based on our analysis. We view the company as a high-quality compounder with secular growth opportunities in the managed care segment. The US Presidential election may cause additional near-term uncertainty, but we believe United Health will be able to rebound once pricing and utilization issues normalize.”
