What's a good stock to buy as a gift for a curious child?
Obviously, it would be great to choose a company that turns out to be healthy and profitable as the child grows up -- and for many years beyond. But we'd also argue that giving stock in a business that will engage the child's interest in learning about the business itself over time is a gift that will teach important lessons that will serve the recipient well as he or she moves into adulthood and begins choosing investments independently.
We've asked our Foolish specialists to suggest stocks that might serve a young investor well on both fronts. Here's why they recommend PepsiCo (PEP 1.08%), Hasbro (HAS 0.60%), and Amazon.com (AMZN -2.56%).
Just let it Drip
Cory Renauer (PepsiCo, Inc.): With the weather heating up, the kids on your shopping list might love some Pepsi -- and they might welcome some PepsiCo in their portfolios. And as the adult ultimately responsible for managing those portfolios, you'll appreciate the company's dividend reinvestment plan (Drip).
Image source: PepsiCo.
Drip stocks are terrific for budding investors with limited funds. The stock's 2.7% yield might need to accrue for an awfully long time before your child would be able to buy an entire share at its recent price of about $117. But PepsiCo's plan automatically reinvests dividends received, and it allows your kids to increase their existing holdings with purchases as small as $50 at a time.
Although the eponymous fizzy drink is slowly losing ground to noncarbonated beverages, PepsiCo's portfolio of healthier snacks and beverages is firing on all cylinders. When the company reported last, sales of "guilt-free" offerings geared at health-conscious consumers comprised 45% of total revenue. The company's leading share of this increasingly important beverage segment is pushing the stock to new heights, and there might not be a better time to buy than right now.
New beverage companies may come and go, but PepsiCo is here to stay. Its economies of scale and entrenched relationships with retail outlets are enormous advantages that will probably still be in place when you're telling your grandkids about how you used to drink sugary sodas when you were their age.
The business of fun and games
Chuck Saletta (Hasbro): Toymaker Hasbro has a lot going for it these days that makes it a great stock to consider for your kids. For one thing, it has an incredible tie-in with Disney (DIS 0.16%) properties, including Star Wars, Marvel, and the Disney princess line. That Hasbro is able to make the toys and figures associated with intellectual capital that Disney has been able to turn into multigenerational classics speaks to the strong enduring appeal of its products.
Hasbro is no stranger to games, toys, and activities that remain popular for generations. It owns properties including Monopoly, Life, and Play-Doh, along with the Nerf line. In an industry known for passing fads, hot properties that fade away, and temporary winners, Hasbro has established itself as capable of maintaining many of its franchises for decades. Between its own long-term franchises and its Disney partnership with that titan's long-term franchise, Hasbro has real potential staying power.
Hasbro's shares aren't exactly cheap, trading for around 23 times trailing earnings, but they do carry a decent 2.2% yield that represents only around 45% of its earnings. Hasbro has a decent history of increasing its dividend, and as long as its business remains strong, it has room to continue those increases as its operations grow over time. What makes this June a great time to consider buying Hasbro is the fact that the Disney partnership is still growing. For instance, with a decent path forward via the next set of Star Wars movies, there's still more growth potential ahead.
However, perhaps the biggest risk to Hasbro over the long haul is its Disney partnership. To the extent that much of Hasbro's recent growth has been due to the strength of that partnership, any potential future souring of the relationship will probably hurt Hasbro worse than it does Disney. But as long as Hasbro can profit both from its own long-term franchises and those of that key strategic partner, it's a toy company that both kids and their parents just might enjoy owning.
A winning investment that every kid will know
John Rosevear (Amazon.com): I'll say it right up front: At $1,000 a share, Amazon's stock isn't a casual gift for most folks. But if you're willing and able to spend the money, I think there are two good reasons why it's hard to do better than a share of Amazon for a young person -- and an argument that even at $1,000 a share, Amazon is a buy right now.
Twenty years in, Amazon is still a growth stock. AMZN data by YCharts.
First, while we all know that disruption and disasters can happen to even the best-seeming companies, Amazon looks likely to be with us for many decades to come. It has a commanding position in e-commerce in much of the world, it's still growing in several different directions (and its cash flow is rising steadily), its management team is in for the long haul and has substantial skin in the game, and its constant experiments with new products and services are likely to yield even more new revenue streams in coming years.
The second reason? Just about every kid these days knows Amazon: It's where toys and games and other fun and useful things come from. A gift of stock is a great way to encourage a bright young person to learn about markets and investing early -- especially if it's a company they already know and like.
Finally, why buy now, when the company's stock is hovering near its all-time high? Because as I explained above, it's as clear as ever that Amazon is just beginning to realize its huge growth potential.
Long story short: Amazon is here to stay, it probably has a lot of growth in its future, and it's a company every kid knows. As I see it, that's exactly the kind of stock you want to give a young person.
