Penny stocks may look exciting, but more often than not, all they're really good for is helping you to lose your hard-earned money. If you're thinking of jumping in to penny stock investing, take a deep breath first, and read on to find out why three of our contributors think you should take a look at Welltower (NYSE:WELL), Affiliated Managers Group (NYSE:AMG), and Morningstar (NASDAQ:MORN) instead.

The opposite of a penny stock in all the right ways

Matt Frankel, CFP (Welltower): Penny stocks are mostly the stock market's version of get-rich-quick schemes. Sure, they look like companies with mind-blowing growth potential, but more often than not, they end up going to zero. Unfortunately, they are often the investment targets of newer investors who don't know better (yet).

Arial view of a jar of pennies, with more pennies surrounding it.

Image source: Getty Images.

Having said all that, the way newer investors should invest is with stocks that have easy-to-understand businesses, growth potential in any economic climate, and long-established track records of profitability. If you add a solid dividend with a great history of growth, that's even better.

One stock that checks all of these boxes is Welltower, a real estate investment trust that focuses on healthcare properties. Since its IPO in 1971, the company has done a great job of growing the property portfolio and its profitability. And, the stock pays a massive 5.3% dividend yield and the payment has been increased nearly every year. The combination of growth plus income has produced annualized returns of 14.7% over the past 47 years -- a remarkable level of performance to sustain for such a long time period.

In addition, with extremely favorable demographic tailwinds, Welltower is well-positioned to continue its growth story in the years ahead. The 85-and-older age group is the sweet spot for Welltower's core senior housing property portfolio and is expected to double over the next 20 years.

In a nutshell, Welltower won't make you rich overnight, but it can be an excellent way to build wealth over time without a ton of risk.

A bold bet

Jordan Wathen (Affiliated Managers Group): This asset management company has a unique business model wherein it invests in companies that manage money. In exchange for an up-front payment, Affiliated Managers Group receives ownership interests in the manager, and in some cases, a share of the managers' revenue.

Shares of money managers have been hard hit this year as it becomes increasingly clear that fund fees are almost certain to decline. The rise of low-cost index funds and exchange-traded funds (ETFs) is forcing active funds to compete more aggressively with one another and prove that the managers are worth a higher price.

Affiliated Managers Group is likely to hold up better than most, owed to the fact that roughly half its assets under management come from alternatives and multi-asset strategies, which are more difficult to replicate with less expensive funds, and as a result, subject to less pricing competition than other types of funds.

The stock isn't for the faint of heart. Its profitability is inherently tied to the direction of asset prices, as fund managers generally earn a fee based on the amount of assets they manage and their performance for their clients. If you think stocks are likely to fall, this certainly isn't the stock for you.

That said, the company throws off a tremendous amount of cash, which it can use to acquire larger stakes in managers at depressed prices, repurchase stock, or pay a cash dividend to investors. Shares trade at a single-digit multiple of what the company could realistically earn this year, though you can say that for many publicly traded asset managers. In this case, investors are getting a better business model at the same price. This stock is in the bargain bin. If sentiment (and stock prices) turn for the better, it could quickly move higher.

Plot your course by this star

Dan Caplinger (Morningstar): Most people understand intuitively that in any industry in which there are large groups looking for ways to get rich, those who go into the business of providing those groups with the tools they need to seek their fortunes almost inevitably do very well for themselves as well. That was true in the gold rush era with picks and shovels, and it's true in the modern financial era with Morningstar.

One of Morningstar's biggest claims to fame among ordinary investors is its star-based rating system that mutual fund investors use to determine whether putting money into a given fund is a smart move. Millions of people rely on Morningstar's star ratings to help them in their decision-making processes, and the company gets licensing revenue for the use of those ratings across the industry.

But Morningstar's business goes well beyond simply giving zero to five stars to other companies' mutual funds. The company also provides in-depth research and analysis that goes beyond traditional mutual funds to cover exchange-traded funds as well as individual stocks. Morningstar even manages assets on its own, pulling in fees for its proprietary investing products.

A booming stock market has helped Morningstar, but when markets become volatile, investors also turn to the company for the information they need to make informed choices. That makes Morningstar a solid stock pick regardless of the market environment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.