If you're on the hunt for stocks to buy for your kids, to teach them about investing or simply to get them off on the right financial foot, our contributors think the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB), Walt Disney Company (NYSE:DIS), and Markel Corporation (NYSE:MKL) are worth checking out. Read on to find out why.
Biotechnology is the wave of the future
George Budwell (iShares Nasdaq Biotechnology ETF): Instead of buying an individual stock for a child, I think the better way to go is to buy an exchange-traded fund (ETF) that tracks an industry with a long-tail growth trajectory. Besides offering a quick and easy route to diversification, a good ETF really shouldn't require any babysitting whatsoever -- that is, if you pick the right one.
And for my money, the best of the bunch is the iShares Nasdaq Biotechnology ETF.
I own IBB for two core reasons. First off, the biotechnology industry is just starting to break through in terms of the medical advancements that the completion of the Human Genome Project made possible roughly 14 years ago.
DNA sequencing technology, for example, has opened up exciting new avenues for drug discovery -- avenues that are currently leading to functional cures for some forms of cancer, game-changing new medicines for hundreds of rare diseases, and so much more. Long story short, biotechnology is going to continue rewriting the book on human health in the decades to come, making it a powerful long-term trend to be invested in right now.
The second reason I like this ETF, particularly when compared to most individual biotech stocks, is that the industry is notorious for its volatility because of the almost chaotic nature of drug development. IBB minimizes the impact of clinical or regulatory setbacks by maintaining positions in hundreds of individual biotech companies.
In all, IBB is an outstanding way to gain exposure to a high-growth industry with a promising future.
Disney is a winner (but not for the reason you think)
Jason Hall (Walt Disney Co.): As a brand-new father -- at this writing, my son is 10 days old -- I've been thinking about this topic for quite some time. And one company that continually comes to mind is Disney. But while Disney is a very kid-friendly company, not to mention a name that every kid in America (and maybe most on the planet) would recognize, that's only a very small part of what makes it so attractive to me.
The single biggest thing about Disney that makes it stand out to me is the incredibly large, diverse collection of intellectual property the company owns, which it will be able to monetize for decades to come. After all, the world's middle class is set to expand to some 5 billion total members in the coming decades, significantly larger than it is today. And Disney is far more likely than not going to remain one of the biggest entertainment companies on the planet.
There are valid concerns in the short term, notably in regard to the ESPN arm, as the decline of paying cable subscribers weighs on this important and highly profitable segment of Disney's business. But when I look out at the future -- when my son is an adult, maybe with kids of his own -- I have little doubt that Disney's various properties will be just as big a part of popular culture then as they are today, only with a lot more potential customers in decades to come.
A mini-Berkshire for your mini-me
Steve Symington (Markel): As a specialty insurance and financial holding company, Markel might not be the most exciting business for your children to watch. And it may not be the easiest for them to understand as young investors. But I think it's a great option, considering they have decades of investing ahead of them, and given the shareholder-friendly approach and demonstrated ability of this mini-Berkshire Hathaway for consistently generating market-beating returns over the long haul.
For one, Markel management's stock and bonus compensation is tied to the company's five-year rolling average growth in book value per share, ensuring that their interests are aligned with those of fellow shareholders. Meanwhile, the company generates that growth in three ways, including maintaining disciplined underwriting in its consistently profitable insurance business, buying and holding high-quality equities and fixed-income investments through a portfolio managed by Chief Investment Officer and co-CEO Tom Gayner, and tending to its growing, diversified portfolio of acquired non-insurance businesses operating under the Markel Ventures segment.
Markel shareholders have profited handsomely in the process, with the stock climbing more than 11,000% since its IPO at $8.33 per share in December 1986. But with shares currently trading at around 1.5 times book value per share, just slightly above its average historical valuation range, and with a market capitalization of around $13 billion -- which is a fraction of the $400 billion behemoth that is Berkshire, after which Markel models its own business -- I can't think of a better stock to buy for your kids.
George Budwell owns shares of Berkshire Hathaway (B shares) and iShares NASDAQ Biotechnology Index. Jason Hall owns shares of Berkshire Hathaway (B shares), Markel, and Walt Disney. Steve Symington owns shares of Markel. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Markel, and Walt Disney. The Motley Fool has a disclosure policy.