9 of the Best Stocks for a Starter Portfolio

Consider buying these nine companies for a solid start.

When you’re first getting into the stock market, there are many factors to weigh. For example, should you buy individual stocks or funds that hold many companies? While exchange-traded funds and mutual funds should probably form at least part of your portfolio, they may not quite provide the same excitement as finding a company you believe in and putting skin in the game. But buying individual stocks means taking on more risk than with diversified funds. If you’re wondering what the best stocks for beginners are, take a look at larger companies with long track records, solid fundamentals and strong balance sheets. You should pay attention to valuation metrics, such as a company’s price-earnings ratio, but sometimes stocks are expensive for a reason. Here are nine stocks to consider for a starter portfolio.

Lowe’s Companies Inc. (LOW)

Housing market fundamentals have been a shorter-term tailwind for Lowe’s, but Dan Eye, chief investment officer at Fort Pitt Capital Group, says there’s more to the story that makes the company a good longer-term play. The company is executing a turnaround strategy to become a better retailer. “Their strategy is working, and Lowe’s is showing success in improving operations, increasing profitability, upgrading their online infrastructure and utilizing their labor force more efficiently,” Eye says. The company is narrowing its operational performance gaps with rival Home Depot Inc. (HD) and offers a relative valuation discount that is an attractive entry point for Lowe’s, he says. Additionally, the many aging homes in the U.S. will likely need more upgrades and repairs, he says.

Lincoln National Corp. (LNC)

In the insurance space, there are few companies as venerable as Berkshire Hathaway Inc. (BRK.B, BRK.A). But it also owns a multitude of other businesses, and Chuck Lieberman, chief investment officer at Advisors Capital Management, says its conglomerate nature may be holding its share price back more than if it were broken into parts. Also, Warren Buffett’s eventual departure is a risk, he says. “Personally, I’d rather own Lincoln Financial, another household name in life insurance and annuities, which is much cheaper, very nicely profitable, has a good dividend, and which still buys back lots of shares,” he says. The holding company provides financial advice and retirement plan services in addition to annuities and life insurance.

Johnson & Johnson (JNJ)

For relatively safe beginner stock picks, Robert Johnson, finance professor at Creighton University, recommends picking ones that have increased their dividends for many consecutive years. “Some refer to these as ‘ruler stocks’ because if you laid down a ruler on a graph of dividends over time, the ruler would point to the northeast and most of the points would be very close to the ruler,” he says. One company with a strong dividend track record is Johnson & Johnson. As a company that produces consumer staples, it’s considered a defensive play because it tends to do better than other types of investments during an economic downturn. Of course, that also means it can lag other stocks when the economy is doing better. But for a stable source of income year in and year out, you could do a lot worse.

Alexandria Real Estate Equities (ARE)

Depending on their age, beginner investors may have more risk tolerance than those closer to retirement. That doesn’t mean you should put all your money in cryptocurrencies, but it does mean that not every single company in your portfolio necessarily has to be a household name. Peter Zabierek, CEO of Sugi Capital Management, recommends looking for stocks with less correlation than some of the megacap equities that are in the same indexes and exposed to the same risks. Alexandria Real Estate Equities falls into that category, he says. Additionally, this real estate investment trust that provides lab space for rent to biotech companies has strong long-term demand drivers, he says. “Pandemic or no, funding has soared to the biotech arena,” he says. “While you might have trouble offering the unicorns Series A funding, you can invest in their landlord. Great management team, solid balance sheet and a 2.3% dividend yield. I love it.”

JPMorgan Chase & Co. (JPM)

As the economy improves, the Federal Reserve is likely to start tapering its bond purchases, which will push interest rates higher even before the central bank actually raises its key policy rate. Long-term interest rates tend to rise faster than short-term ones. That means banks will be able to earn more interest on long-term loans than they have to pay out in short-term rates on savings accounts and certificates of deposit. Within this positive outlook, three experts pointed to JPMorgan Chase as a solid long-term holding. Vinny Yu, co-founder of Javlin Invest, says the bank offers higher returns and lower volatility than competitor Wells Fargo & Co. (WFC).

UnitedHealth Group Inc. (UNH)

With health care spending making up around 18% of U.S. gross domestic product, it might be wise to have some exposure to the industry in a starter portfolio. Loreen Gilbert, CEO of WealthWise Financial Services, points to UnitedHealth Group, one of the biggest health care companies in the world. The company, which provides health services as well as coverage and benefits services, has experienced headwinds during the pandemic, including testing and treatment costs, people deferring non-COVID care, and the general economic downturn. But despite lingering negative effects, in the second quarter, it raised its full-year net earnings outlook. In the same quarter, the company increased its revenues by 14.8% from the prior-year quarter, although its earnings slipped.

Alphabet Inc. (GOOG, GOOGL)

Megacap technology-related companies were investing stalwarts even before the pandemic, making up a big chunk of the S&P 500. During the pandemic, they became a place for investors looking for relatively safe names. It may sound odd to list tech-related businesses as relatively safe assets, but these companies, with their huge market capitalizations and strong financial performance, are far from being risky startups. Investors looking for growth packaged in a large company with a strong balance sheet can turn to Google’s parent company, Alphabet. Although there are regulatory risks hanging over the company as well as other huge tech stocks, Morningstar said in a recent post that decisions on antitrust cases will take a long time, and even a breakup of Alphabet would benefit shareholders.

Apple Inc. (AAPL)

One tidbit of wisdom that beginner investors may be told is to invest in things they know and use every day. By that measure, Apple would probably rank highly in beginner portfolios, considering how many iPhones are out there. And when people combine their use of the iPhone with other Apple products, such as iPads, Macs and Apple Watches, it makes them that much less likely to switch to a competitor. Apple increased its net sales in its most recent quarter by more than 36% as all of its categories, including iPhone, Mac and wearables, saw gains. “Our record June quarter operating performance included new revenue records in each of our geographic segments, double-digit growth in each of our product categories, and a new all-time high for our installed base of active devices,” Chief Financial Officer Luca Maestri said in a statement accompanying the earnings results.

Microsoft Corp. (MSFT)

Computer users tend to fall into two camps: Mac people and PC people. As a leading company serving the latter, Microsoft has gone far beyond its Windows operating system. Its suite of products includes household-name software, such as Excel and PowerPoint, and users devoted to that ecosystem may be less likely to switch. Microsoft is also a strong player in cloud services, which remain a crucial part of modern life, especially as the new normal for work includes more time out of the office. Its Azure cloud services business saw more than 50% year-over-year revenue growth in the company’s most recent quarter. Overall, sales increased more than 20%.

Nine of the best stocks to buy for a starter portfolio:

— Lowe’s Companies Inc. (LOW)

— Lincoln National Corp. (LNC)

— Johnson & Johnson (JNJ)

— Alexandria Real Estate Equities (ARE)

— JPMorgan Chase & Co. (JPM)

— UnitedHealth Group Inc. (UNH)

— Alphabet Inc. (GOOG, GOOGL)

— Apple Inc. (AAPL)

— Microsoft Corp. (MSFT)

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