We recently published a list of 10 Best Stocks For Beginners With Little Money. In this article, we are going to take a look at where PepsiCo, Inc. (NASDAQ:PEP) stands against the other stocks for beginners with little money.
“In my view, for most people, the best thing to do is own the S&P 500 index fund,” believes Warren Buffett of Berkshire Hathaway, who is the most successful investor not only in our time but also in human history. Buffett made the remarks at his investment firm Berkshire Hathaway’s 2020 Annual Meeting, but it wasn’t the first time he shared similar thoughts. While most investment advisors and internet stock analysts are likely to boast about ‘chasing the alpha,’ for the Oracle of Omaha, who is currently worth $144.5 billion excluding his charitable donations over the years, most people are better off tracking the S&P.
Buffett has, in fact, held this opinion for years. Speaking to CNBC in 2017, he reiterated that “consistently” buying an index fund linked to the flagship S&P index is “the thing that makes the most sense practically all of the time.” Buffett added that an investor should persist even during the bad times, when the “temptation when you see bad headlines in newspapers is to say, well, maybe I should skip a year or something.” Do not give in, says the Oracle, and “just keep buying” since “American business is going to do fine over time, so you know the investment universe is going to do very well.”
Yet, there’s another temptation that especially beginners to the stock market have to face. This is the rush to ‘alpha’ and by extension, wealth and riches. But according to Buffett, the “trick is not to pick the right company, the trick is to essentially buy all the big companies through the S&P 500 and to do it consistently and to do it in a very, very low cost way,” since “you do not want to ever get the impression that you can pick stocks.” This false belief carries the risk of making a beginner believe that they have an edge over others, while the reality “just doesn’t work that way,” believes Buffett.
However, just because you’re a beginner with little money, doesn’t mean you can’t make it big. Wall Street, despite its flaws, has also produced titans of the investing world who started out with little to nothing. One of the best examples of this fact is Ken Fisher of Fisher Investments. Fisher’s childhood didn’t make him a stranger to Wall Street as his father Philip Fisher is one of the most consequential figures in Wall Street’s history. Fisher Sr. was the original Cathie Wood who popularized growth investing and sought to invest through a strategy called “scuttlebutt investing.”
Fisher Sr. covered this strategy in his seminal work Common Stocks and Uncommon Profits (“one of the great books on investing,” as per Buffett) and shared that an investor should conduct in depth research for a firm by getting to know its executives and employees. While Fisher’s father is a Wall Street legend, Ken started out his firm with just $250 in 1979. As of Q2 2024, the firm had $229 billion in investments as indicated through its SEC filings while Fisher’s net worth is $11.2 billion.
While today’s $250 is far from being similar in value to $250 when Fisher started his investing journey, technology enables today’s beginner investors to invest with even less money. One way to do so, if you’re feeling bold enough to ignore Buffett’s advice against stock picking, is to use fractional shares. Through these, a wide variety of brokerages enable beginners on the stock market to invest in stocks through as little as $1 and any dollar amount via features such as cash quantity stock orders. Fractional investing also enables some of the smallest investors to gain exposure to big ticket stocks, including Berkshire, whose Class B shares have a recent closing share price of $689,287.
Finally, before we get to our list of the best stocks to buy for beginners with little money, another way for a beginner to start out with little money and grow portfolio value over time comes through dividend stocks. These stocks offer beginner investors stable and often regular payouts over the long term. While everyone likes stable income, the true magic of these stocks is the ability to reinvest these dividends to generate even more returns. The benefits of reinvesting dividends are clear when we look at the data. This shows that a $1,000 investment in the benchmark S&P index would be worth $33,500 in 2022 without dividend reinvestment. But if the dividends were reinvestment, the final value nearly triple and would be worth $93,000.
With these details in mind, let’s take a look at some of the best stocks to buy for beginners with little money. If you want to learn about a special stock that might be able to deliver 100x returns, check out our report about the cheapest AI stock.
Our Methodology
To make our list of the best stocks to buy for beginners with little money, we first made a list of 20 stocks recommended by the financial media. Then, these were ranked by the number of hedge funds that had bought the shares in Q2 2024 and the stocks with the highest number of hedge fund investors were selected.
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).
A close up of a glass of a refreshing carbonated beverage illustrating the company’s different beverages.
PepsiCo, Inc. (NASDAQ:PEP)
Number of Hedge Fund Holders In Q2 2024: 65
PepsiCo, Inc. (NASDAQ:PEP) is a global brand name for carbonated beverages. Its strong brand recognition, considerable financial resources (cash equivalents of $10 billion), and global presence as evidenced by nearly 300,000 employees worldwide mean that PepsiCo, Inc. (NASDAQ:PEP) enjoys considerable economies of scale. This is key in the beverages industry, as along with innovative product ideas, volume shipped is a central tenet of any firm’s hypothesis. However, at the same time, the economies of scale also mean that PepsiCo, Inc. (NASDAQ:PEP) has to keep a tight grip on its costs since it is a key metric that investors watch. Any weakness on this part can translate into share price headwinds, and PepsiCo, Inc. (NASDAQ:PEP) has benefited from recent inflationary trends by raising prices that have allowed it to post a 30% absolute revenue growth between 2020 and 2023. Yet, the firm’s direct sales costs have grown by 32% while its operating costs have jumped by 28.5% making PepsiCo, Inc. (NASDAQ:PEP) walk a tightrope when it comes to margins. This rope might become thinner in the future as slowing inflation and sticky costs continue to pressure the firm’s margins.
Artisan Partners mentioned PepsiCo, Inc. (NASDAQ:PEP) in its Q1 2024 investor letter. Here is what the fund said:
“In the demographics/consumer trends theme, slowing sales volumes led us to focus more on services versus goods. As an example, we sold our position in food and beverage leader PepsiCo given slowing growth in its underperforming core beverage business, one which generates about 60% of revenues. Adding to the uncertainty of growth prospects beverages, PepsiCo was forced by local lawmakers and industry wholesalers to shift to a new distribution model during the rollout of Hard Mtn Dew, a new line of drinks that combines Mountain Dew with malt liquor.”
Overall PEP ranks 9th on our list of the top stocks for beginners on a budget. While we acknowledge the potential of PEP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PEP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.