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Best Stocks To Buy (For Beginners And Pros)

10-minute read

If you’re thinking about investing in stocks, it can seem like a very complex endeavor. Things like dividends, capital gains and chart patterns make it seem like you need special insight to invest in the stock market. The fact that one of the most successful stock investors of all time, Warren Buffett, is referred to as the “Oracle of Omaha” might lead you to believe you need supernatural abilities.

While the stock market takes time to learn, you don’t need superpowers to invest successfully. There are no foolproof stocks, but there are safer investments than others. You just need the basics of investing to get started.

As with any investment, stocks have a level of risk that come with them. Before focusing on an investment for the future, there are a couple of things you should consider. First, pay down existing debts to make sure you’re in a strong financial position.

Second, create an emergency fund. You never want to sell stocks on the basis that you need cash now. You often have more success if you buy and hold a stock for several years. Creating an emergency fund and making sure that investing priorities don’t take precedence over the rest of your budget could save you a lot of trouble in the long run.

This article will go over how to invest in the stock market as well as how to find the right stocks to buy for your situation.

Basic Terms For Beginners

Before you start investing, it's helpful to familiarize yourself with these common terms.

New York Stock Exchange (NYSE)  

The NYSE is the world's largest stock exchange. Located at 11 Wall Street in Manhattan, New York City, this stock exchange does billions of U.S. dollars in trades daily and total value tops out in the tens of trillions of dollars.

Nasdaq 

The Nasdaq is the world's second-largest stock exchange, founded by the National Association of Securities Dealers in 1971. Also located in Manhattan, Nasdaq is a publicly traded company listed on its own exchange, earning hundreds of millions of dollars in trade revenue yearly.

Securities

All stocks are a type of security, but not all securities are stocks. Where stocks are an ownership stake in a company, another type of security is a bond, which is basically a loan to a government or an organization.

Bull Market / Bear Market

The bull and the bear are two widely used symbols of the stock market. They represent the attitudes of investors. A bull market is a trend where prices steadily rise over a period of several months. A bear market is the opposite, with prices declining over time. Conventional wisdom states that a bull market is a good time to sell and a bear market is a good time to buy, though whether that's true for you is highly situational.

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How Do I Find The Right Investments For Me?

Investing in the stock market can happen a variety of ways. You can do anything from hire a stockbroker to oversee your investments or make  investments through an app on your smartphone. When trading stocks, you can set up a fund with a professional and invest based on their recommendations, self-direct your own trading, or you can employ a mix. You can find a broker either through a bank or an online trading platform.

Knowing which stocks to buy can be intimidating, particularly if you’re a beginner. As noted earlier, there’s no sure bet. However, there are several steps you can take to figure out whether an investment is right for you.

Hit Up The Stock Analysts

Stock analysts get paid to figure out which are the best stocks to invest in. If you’re getting into this game, one place to look would be to figure out what the pros are saying. They research companies and pore over publicly released investor information every day to make recommendations. Sometimes they work for large banks or mutual funds. Other times they might provide information to paying subscribers. All stock analysts have the goal of generating returns for the investors who use their information, proving the value of their service.

A lot of these stock market gurus publish information online. However, just because they spend their days analyzing stocks doesn’t mean they’re good at it. Any serious analyst will put their money where their mouth is and publish their record. Evaluate the returns and read the reviews others before blindly trusting your investment strategy to any analyst.

Research The Industry

One of the things Warren Buffett preaches is to invest in industries that you’re passionate about. If you’re reading about certain industries and watching what happens within them closely, this makes you more likely to be able to pinpoint good investments within that particular industry. You’ll know which companies are on the right track and you’ll also have a better understanding of the external forces that impact that industry as a whole.

It’s these external forces that make diversification of your portfolio important. If you’re fully invested in tech stocks and there's a critical shortage of the metals used in computer chips, that would negatively impact the entire industry and your portfolio would suffer. On the other hand, if you have some money invested in Apple, some in Waste Management and some shares in a stock market stalwart like GE, it’ll be easier to weather a downturn in any particular business. This is why diversification is incredibly important.

Research A Company

It’s important to be able to do some research on the company you’re buying before moving forward with an investment. You can start by researching recent past performance of the stock. Be aware of tailwinds that might help the company meet future goals as well as challenges it might face in the near future. Does it have a new product? Or has it been a while since the company came out with something new? Is the company innovating in a new space or are they facing increasing competition?

As an example, Netflix was a first mover in the streaming video space, but in recent years it has had more competition. The streaming industry has also dealt with increasing fees for streaming rights.

Look At The Company’s Financial Statements

Reviewing company financial statements can give you an idea of the future of the company beyond revenues and expenses. In addition to figuring out earnings, knowing where a company spends its money tells you a lot about where management wants to take the organization. If you have an idea of where the company is headed, you can make a better judgement of its long-term prospects. You’ll know whether they’re investing for the future with R&D or slashing headcount in order to keep the business afloat. Sometimes you can figure out a lot just by looking at the numbers.

Examine The Company’s Management

It’s important to be able to evaluate the management of a company as part of trying to determine its long-term prospects. When you do this, there are a couple of red flags you should avoid:

  • A small leadership team with no clear succession plan. What happens to the company if the person with the vision leaves?
  • Leadership is selling their stock. If this is happening, it might mean that they don’t have as much confidence in the future of the company. They could be trying to sell their stock while they can.

Find A Stock Broker

As mentioned above, you really can’t trade stocks on your own. It’s something that has to be done through a licensed broker. You can find an in-person broker in your area or do your trading with an online brokerage. Either way, you can have your stock trades either self-directed or managed by the broker.

Beginners may feel more comfortable having their trades managed by an experienced hand who can give them guidance while earning more in fees. There is a growing number of services that will let you direct your own trades while investing a relatively small amount of money.

It’s up to you what you feel more comfortable with.

Stocks To Buy For Beginners

Some stocks are riskier than others and should only be dealt with by more experienced traders. But there are ways that beginners can get involved in the stock market.

What Are The Best Types Of Stocks For Beginners?

There are some stocks that are lower risk than others and would be a better starting point for anyone looking to get into stock investing.

Dividend Stocks: Dividends are funds paid to stockholders out of a company’s earnings or profits. Companies that offer dividends tend to be well-established blue-chip stocks with a long history of profits.

Shares of large companies: Large companies tend to be safer bets than small ones because they tend to have a more stable leadership team than an upstart. Additionally, you don’t get to be huge like Amazon or Exxon Mobil without weathering a few storms along the way.

Stocks of profitable companies: If the company is profitable, it’s a good sign that they can handle a downturn because they have more cash on hand to handle a change in the market while they adjust. Publicly traded companies must report their financials, so understand their profitability from this.

ETFs: Short for exchange-traded funds, ETFs go up or down with the performance of whatever index they’re tied to. The ability to invest in something that tracks with the entire Dow Jones Industrial Average, for example, helps mitigate the risk you might otherwise take on by investing in individual companies that might have a bad year. While it has ups and downs, the stock market tends to go up more often than not. The average return is 7% per year, after inflation. While returns vary from year to year, if you buy and hold the fund, you’ll end up with a good return over time.

What Stocks Should Beginners Avoid?

There are some stocks that represent a higher risk and could spell disaster for new investors.

Penny stocks: Penny stocks are very cheap. They may be from brand-new companies or ones that may or may not recover from taking a massive stock hit for one reason or another. While it’s true that you could end up with a profit boom, the stocks end up being a bust too often to recommend.

Cyclical stocks: These are stocks from companies that end up going in cyclical patterns with the economy or some other force like the weather. Examples of these types of stocks might be those tied to farming, which is very reliant on weather patterns. Another example would be hotels. Business booms when the economy is good and people have disposable income, but they aren’t so good in a downturn.

Popular Stocks To Buy For Beginners

Before we get into this, we want to make clear that every situation is different and that you should do your own research. We’ve got some criteria that we used to determine stable stocks you should think about buying.

  • Dividend growth rate: Growing dividends with a level of stability show a company that’s confident in its business enough to be paying back investors.

  • 5-year return: You want a stock with a track record.

  • Diversified business interests: You want a company with products crossing different sectors because if there’s a downturn in one area, there are other areas of the business they can rely on in the future.

  • Company longevity: When judging a company, it helps to know that they’ll probably be around for the long haul.

Looking at these criteria, here are some stocks to consider.

  • Berkshire Hathaway: This multinational conglomerate wholly owns many well-known companies, like GEICO, Dairy Queen and Fruit of the Loom, as well as has partial holdings in Coca-Cola, Bank of America and Apple. The company is controlled and lead by Warren Buffett himself and has a history of steady growth. Its companies are incredibly diverse, ranging from the insurance industry to manufacturing and retail to utilities and real estate. 

  • Johnson & Johnson: This company has been around forever. It checks the longevity box. Johnson & Johnson makes a lot of money in pharmaceuticals and medical devices, and many of its competitors are in the pharmaceutical business. Humans are always going to need medicine. J&J also makes a wide variety of consumer-packaged goods, making their business more diverse.

  • AT&T: It's safe to say that the internet isn't going anywhere. With growing demand for streaming services, online shopping and working from home, AT&T is a solid investment in the future. The company has a stable history for growth and dividends, and since their purchase of TimeWarner, they have diversified their business. It may not be the fastest-growing stock, but it's reliable and AT&T's dividends are typically well above market standard.

  • Alphabet: Unless you follow the financial press, you might not know what Alphabet is, but it's likely you’ve heard of its chief subsidiary, Google. Beyond Google, Alphabet is involved in a variety of industries including medical devices, oil and operating systems, so the business is very diversified. Although the share price is expensive, certain services allow you to buy fractional shares. You wouldn’t be buying at the bottom, but this is a company that appears to be in it for the long haul.

Stocks To Buy For Pros

If you’re a professional investor or someone who feels more comfortable with your financial portfolio, there are more advanced stock strategies to look at. If you’re comfortable evaluating companies and looking at financial statements, look at initial public offerings (IPOs) or younger companies. If you find the right investment in an up-and-coming category, you may be able to make a significant amount of money.

However, if you’re going to do this, you should be comfortable with your own financial position, as there is greater risk involved. Knowing how to spot companies that are in good financial footing is essential before investing.

It’s important to understand your personal investment style. If you want to set more conservative or aggressive goals, that’s going to change your targets and the types of assets you have in your portfolio.

Top Stocks To Buy For Pros

If you know what your risk tolerance is, you can start branching out into different types of stocks. Let’s look at a few.

  • Small-cap stocks: Small-cap stocks are traded on the Nasdaq and are riskier investments. Many small-cap stocks are considered growth stocks, meaning that they are focused on rapid, short-term growth. They're typically smaller companies that have a lot of potential for boom or bust. If you're really looking at the financials, there's a chance to make a lot of money. There's also a chance to lose it all.

  • Stock options: American-style stock options give an investor the opportunity to buy or sell a stock at any time between the purchase and expiration date of the option. It’s a little complex, but it allows a trader to bet that a stock will rise or fall by a certain price. If the bet hits, there’s the potential to make a lot of money. If it doesn’t, you lose the investment.

The Bottom Line

It’s important to do plenty of research and talk to a financial advisor if you’re not comfortable picking which investments are right for you. Saving for retirement is also an investment that everyone should consider. Stocks can be part of that portfolio, but it’s vital to take a complete look at your financial picture.

When you do decide to invest in stocks, remember to diversify your portfolio. Consider investing in an array of markets, like real estate, health care and tech. With a diverse portfolio, you're protecting yourself from unpredictable external forces.

For more information on investing and money management, check out the personal finance and credit Learning Centers.

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