In this article we will take a look at the top 10 stocks to invest in for beginner investors. You can skip our detailed analysis of these stock’s outlook for 2021 and some of their major growth catalysts and go directly to Top 5 Stocks to Invest in For Beginner Investors.
History shows that beginner investors with limited knowledge of the stock market often give in to speculation, rumors and bad advice, ending up in a vicious cycle of losses. One should practice extreme caution and do a lot of research before investing because data shows that investors with limited budget often lose a lot of money. That’s not surprising. Higher capital reduces your risks and let you ride out your losses longer. Money makes money. The GameStop episode earlier this year gives us some key insights into this interesting but harsh truth. Initially, Reddit and retail investors cheered the downfall of Melvin Capital, but the endgame clobbered the individual investors as they lost millions following the decline in GameStop price, regulatory activity by authorities and suspension of GameStop trading by apps like RobinHood. Big hedge funds like Steve Cohen’s Point 72 and Ken Griffin’s Citadel invested $2.75 billion into Gabe Plotkin’s Melvin Capital to save it. In the end, individual investors had to be on the losing end.
Top Stocks To Invest In For Beginner Investors
An interesting study titled “Just How Much Do Individual Investors Lose by Trading?” sheds light on the risks faced by beginner and individual investors as compared to the dominance of institutional investors. The study analyzed data of the Taiwan stock exchange and concluded that the aggregate portfolio of individuals sufferd an annual performance penalty of 3.8 percentage points and their losses account for 2.2% of Taiwan’s gross domestic product. On the other hand, institutional investors posted annual returns of 1.5 percentage points in the same period.
However, the market is full of individual investors who are extremely profitable, thanks to their deep research, diversification and smart stock-picking techniques.
In this article we take a look at some of the top stocks to invest in for beginner investors. We focus on the companies with long-term growth catalysts, strong products and services and robust fundamentals. We take into account key metrics like analyst ratings, fundamentals, revenue and user growth and hedge fund sentiment while analyzing these stocks.
Huge financial volatility is not even sparing the experts. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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With this context and industry outlook in mind, let’s start our list of top 10 stocks to invest in for beginner investors.
10. Tattooed Chef, Inc. (NASDAQ: TTCF)
Number of Hedge Fund Holders: 11
Tattooed Chef is one of the best stocks to buy to profit from the rising trends of healthy eating and plant-based food. The company has started adding third-party brands to its portfolio. In 2020, Tattooed Chef brand sales crossed private label sales for the first time, with a 360% growth. As of the end of 2020, the company had 4300 stores. For 2021, the company expects a 49% increase in its revenue. Total distribution points in the year are expected to reach 65,000 in 2021 versus only 23,000 at the end of 2020.
There were 11 hedge funds that hold a position in TTCF at the end of the fourth quarter.
9. Suncor Energy Inc. (NYSE: SU)
Number of Hedge Fund Holders: 25
Suncor is one of the top stocks to invest in for beginner investors. The company operates in the lucrative oil sands market, with primary operations in the Athabasca oil sands in Canada. Its segments also include Exploration and Production (E&P) and refining. In February, the company said that it would not increase its capex in 2021 despite higher oil prices as it eyes to boost cash flows for debt repayments and stock buybacks.
Suncor has a dividend yield of over 3%. The company had been a reliable dividend payer over the last 10 years , until the COVID-19 pandemic hit, after which it had to slash its dividend. However, with plans to increase buybacks and shareholder value, the company is expected to revive its dividend.
With a $232.4 million stake in Suncor, Warren Buffett’s Berkshire Hathaway owns 13.8 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 25 hedge funds held stakes in Suncor as of the end of the fourth quarter, versus 22 funds in the third quarter.
In one of their investor letters, Brown Advisory spoke about Suncor Energy Inc (NYSE:SU). Here is what Brown Advisory said:
“We eliminated our small holding in Cimarex Energy in favor of consolidating our oil-related investments by adding to existing holding Suncor Energy, which we believe is a stronger company to own with oil prices at a historic low.”
8. Magnite, Inc. (NASDAQ: MGNI)
Number of Hedge Fund Holders: 29
Magnite made it to our list of top stocks to invest in for beginner investors because the company is operating in an extremely lucrative and growth-oriented market of online ads. According to a report, the online ads market is expected to reach $982.82 billion by 2025, growing at a CAGR of 21.6% between 2020 and 2025.
Magnite will benefit from the rising demand of programmatic ads as people’s hunger for over-the-top (OTT) content streamed on Connected TVs continue to rise. Magnite shares have gained 810% over the last 12 months. The company earlier this year bought video ads platform SpotX from RTL Group for $1.17 billion.
Nine Ten Partners currently holds 2.4 million shares of MGNI that amounts $79.9 million. MGNI occupies 11.11% of Nine Ten Partner’s total portfolio.
Madison Small Cap Fund, in their Q4 2020 investor letter, mentioned Magnite, Inc. (NASDAQ: MGNI). Here is what Madison Small Cap Fund has to say about Magnite, Inc. in their Q4 2020 investor letter:
“Our best performing stock was driven by our very recent investment in Magnite Corporation (MGNI). Magnite is an AdTech platform that allows digital publishers sell their ad inventory to advertisers in a programmatic, or automated fashion.
Magnite is the scale player with lowest cost structure in a highly fragmented space. Magnite’s customers are looking to consolidate the number of platforms they work with and MGNI is poised to take a significant amount of market share and could potentially triple its revenues over time. Their third quarter results were seen by investors as validation of this thesis and the stock staged a strong fourth quarter run.”
7. fuboTV Inc. (NYSE: FUBO)
Number of Hedge Fund Holders: 31
FuboTV is primarily a sports streaming service offering NFL, MLB, NBA, NHL, MLS and international soccer, along with news and other entertainment channels. In 2020, the company saw a 73% increase in its subscribers, and added 92,800 net new subscribers in the fourth quarter.
There were 31 hedge funds that hold a position in FUBO in the third fourth quarter of 2020.
In their Q4 2020 investor letter, Greenlight Capital highlighted a few stocks and FuboTV Inc. (NYSE:FUBO) is one of them. Here is what Greenlight Capital said:
“FuboTV (FUBO) is a streaming service that offers a sports-focused “skinny” bundle of TV channels that also includes a variety of news and entertainment content. Essentially, this is the type of package that Apple unsuccessfully tried to assemble for years. While FUBO does not currently achieve the gross margins that Apple reportedly sought, FUBO expects to primarily earn profits on advertising and online sports wagering. Our average effective price (we owned shares and warrants) was $5. The shares surged from the $10 October IPO price to end the year at $28. The huge move brought to light a number of bear cases that we believe misapprehend FUBO’s lucrative opportunity in online sports wagering.
The bears contend that the sports wagering market is small and FUBO won’t be able to compete with established books like William Hill or Caesars Entertainment. To the extent that sports wagering is a bet on who wins a game and by how much, we agree. However, we perceive the integrated opportunity to be qualitatively different. What if you could bet 1:2 on whether Giannis will make the next free throw, 1:3 on whether Jacob deGrom’s next pitch will be a strike or 20:1 that Aaron Judge will homer on the next at bat? One could even bet on whether Tiger will make his next putt or whether Nadal’s next serve will be an ace. Suddenly, watching sports goes from being a passive experience to a highly engaging, active one. Higher engagement leads to higher ad revenues and the ability to make other in-app sales to players. We expect the software to launch in 2021, initially for play money and later with the benefit of regulatory licenses for real money. We think the right comparison will be to video gaming companies such as Take-Two Interactive Software or Activision Blizzard rather than other over-the-top (OTT) video providers.”
6. FireEye, Inc. (NASDAQ: FEYE)
Number of Hedge Fund Holders: 31
Major attacks like SolarWinds and increasing reliance of governments and businesses on online payments, Cloud computing and websites would boost cybersecurity stocks like FireEye. The company recently published a comprehensive research on the SolarWinds episode. For 2021, the company expects to cross $1 billion in sales. The company posted strong Q4 results and said that it saw a rise in its consulting services business after the SolarWinds attack. In February, BofA upgraded the stock to Buy from Neutral and upped its price target to $27.
Alta Park Capital currently owns 1.8 million shares of FEYE, worth $1.8 million. FireEye occupies 3.46% of Alta Park’s overall equity.
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Disclosure: None. Top 10 Stocks to Invest in For Beginner Investors is originally published on Insider Monkey.
