The best stocks for beginners in today’s stock market can be tough to find and beginners face a steep learning curve. Volatility is high, and bear market conditions ensure that new portfolios will be tested.
That said, it’s as good a time as any to begin to understand the mechanisms and factors that drive the stock market.
While a younger investor can stand to be more risk-tolerant given their longer time frame, the best stocks for beginners are those that are more risk-averse.
A balanced, conservative approach teaches a beginner investor about the real drivers of the stock market. Investors that understand fundamentals perform better for longer. They are more likely to see gains, albeit smaller gains. But they’re also unlikely to incur large losses and exit the stock market entirely.
|VOO||Vanguard S&P 500 ETF||$343.68|
Vanguard S&P 500 ETF (VOO)
Vanguard S&P 500 ETF (NYSEARCA:VOO) invests in stocks within the S&P 500 index. The S&P 500 comprises the stocks representing the 500 biggest companies in the U.S.
Essentially, investors in VOO shares are getting a representative slice of American business making it one of the stocks for beginners.
VOO shares represent the 11 sectors and is a great tool for investors to understand the stock market. That’s particularly true because it does not include any bond holdings. Therefore, it contains none of the hedge protection that funds with bond positions do.
VOO shares will teach any beginner investor about the value of playing the markets over the long term. There’s a good chance that the Vanguard S&P 500 ETF will fall further moving forward. But business cyclicality and the strength of American business ensure that VOO will rebound sooner or later. That’s a powerful investing lesson.
Novo Nordisk (NVO)
Beginner investing should be predicated on balance. That means buying a healthcare stock like Novo Nordisk (NYSE:NVO) is a great idea.
Novo Nordisk is a strong choice because it is part of the broader healthcare sector of the stock market. Healthcare is one of the sectors noted for its historical strength in any economy, especially during recessions.
Novo Nordisk is a particularly strong choice in the already strong sector. During its most recent quarter, the Danish firm reported a 25% sales increase, operating profits up 26% and an overall profit increase of 11%.
Novo Nordisk’s strength comes from the trends that its therapeutics address: Diabetes and obesity in particular. Young investors will quickly understand that NVO stock is strong because the business satisfies demand while operating well. That making is among the stocks for beginners with a recipe for sustained success.
Wegovy is Novo Nordisk’s injectable weight loss drug that will be sold in the U.S. later this year. It is essentially a stronger form of the company’s type 2 diabetes drug, Ozempic.
Coca-Cola (NYSE:KO) stock is down 4.5% on the year at the time of writing. Not great. However, the S&P 500 is down 24% year-to-date.
The difference between KO stock and the market at large is a prime example of why consumer staple stocks are great defensive stocks. That’s a great lesson when searching for stocks for beginners.
The fact that Coca-Cola is down so little in 2022 is also a great example of beta. KO stock carries a beta of 0.54. Beginner investors would do well to understand metrics like beta as they are powerful tools to combat volatility.
The fact that Coca-Cola has increased or maintained its dividend dating back to 1963 is a powerful lesson as well. KO shares can be used for income the dividend provides. It has proven extremely reliable. A young investor with a long timeframe can reinvest it and use the power of compounding interest to their advantage.
Kroger (NYSE:KR) is one of the stocks for beginners that is proving resilient in 2022. The food retailer’s shares are flat while just about everything else falters. The lesson: Food demand and prices tend to be relatively inelastic.
In other words, consumers need food whether we’re in a recession or expansion and prices tend to remain strong as a result.
The worse things get, the more consumers will continue to prioritize essentials. Crucially, Kroger gained shoppers in the most recent quarter and those shoppers spent more.
The fact is part and parcel of a trend toward increased cooking at home. Inflation increased 8.3% in August. Increases in food prices were particularly stark, rising 11.4%. Food-at-home: 13.5% higher than a year ago.
Those higher prices across the board are leading consumers to pivot toward essentials and Kroger is benefitting. The strong trends and Kroger’s strong performance led management to raise guidance early in September when earnings were announced.
A recent article in the Wall Street Journal indicates why AutoZone (NYSE:AZO) stock is currently a buy. That article highlighted the fact idea that return-to-office mandates are resulting in more driving, thus fueling more repairs.
That’s logical. And RTO mandates certainly helped fuel some of the $5.35 billion in sales at AutoZone during the quarter. However, I’d attribute the majority of the trend to a bigger factor: The record age of vehicles in the U.S.
The average age of light vehicles on the road today reached 12.2 years in 2022 according to IHS Markit. That’s a new record with cars now averaging 13.1 years old. Simply put, older cars require more maintenance and consumers are choosing to do more of it themselves. All of which benefit AutoZone.
It’s also important to note that an increasingly likely recession only strengthens trends favoring AutoZone. A beginner investor can learn a lot from the simple lessons its business offers.
Union Pacific (UNP)
Union Pacific (NYSE:UNP) stock certainly has risk. It has fallen from $250 to $200 in 2022. It can fall farther, of course.
But UNP shares have a few things in their favor that make them an intriguing investment for beginners.
For one, Union Pacific is part of the basic transportation sector. Basic transportation stocks generally act as a hedge in tougher markets: People always need goods and railroad freight is relatively inelastic as a result.
That said, UNP stock does contain some risk. It’s an interesting investment proposition because total operating revenues in H1 and Q2 increased 15% and 14%, respectively.
Yet, net income is not holding as steady. In H1 net income increased 10% as revenues went up 15%. In Q2, revenues increased 14% but net income increased a much more modest 2%.
Recent comments like those from FedEx (NYSE:FDX) CEO Raj Subramanian only cast further doubt on transport stocks. He expects a worldwide recession. That said, UNP remains a solid choice with plenty of upside.
I think all investors should consider Apple (NASDAQ:AAPL) stock currently. It is the best tech stock, period. Apple shares have proven very resilient relative to other tech giants in 2022.
While AAPL shares have shed 22%, other big tech firms including Meta Platforms (NASDAQ:META) and Google (NASDAQ:GOOG) have fared worse, seeing 60% and 32% declines in 2022, respectively.
Meanwhile, Apple continues to operate an exceptional business. In the June quarter revenues reached $83.0 billion, a new record for the quarter and a 2% increase from 2021.
That said, Apple has hardly had an easy 2022. The company recently reversed plans to increase iPhone 14 production as demand headwinds emerged. That’s particularly problematic as Apple derives the majority of its revenues from the iPhone. Further, Apple derives a greater share of its business from consumers who are weakening along with the greater economy.
That said, Apple has provided incredible returns for investors over the past 5 years and beyond. It remains integral to the U.S. economy and is a phenomenal business overall.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.