Masters of anything -- piano, drawing, surgery, golf -- have to start at the beginning, learning basic principles and acquiring skill upon skill. It's the same with investing. Instead of jumping into it by buying into companies you don't understand, it's best to start with relatively easy-to-understand enterprises.
Here's a look at three companies with promising futures, each of which is easier to understand than many others.
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1. Nike
Just do it -- a familiar tag line from Nike (NKE 1.79%) -- is a good message for those thinking about beginning to invest in the stock market. You shouldn't start until you're ready to invest, of course, but once you're out of debt and have a funded emergency fund, it's time to think about socking away dollars for your retirement -- or other financial goals.
Nike is a great stock to start with, because its business model -- how it makes its money -- is fairly easy to grasp. It sells footwear and apparel, mostly of the athletic kind, and mostly sells them through brick-and-mortar stores, though its digital sales have been growing rapidly. It has partnered with suppliers around the world for much of its manufacturing, and its strong brand enables it to charge premium prices for its wares. (Its brand was recently valued at $39 billion, and ranked 13th in the world, per a Forbes list.)
Nike's future is promising in part because of its proven ability to innovate, introducing new footwear designs and "technology" regularly. It also has great growth potential outside the U.S., as recent success in China demonstrates. Meanwhile, Nike is doing well in the present, too -- its second quarter revenue was up 9% year over year, despite an ongoing pandemic, and digital sales were up 84%.
2. Coca-Cola
It's always important to understand the business model of any company you're thinking of investing in, and the Coca-Cola (KO +0.85%) business model is a great example, because it's not quite what some might expect.
You might think that Coca-Cola makes its flagship beverage and ships it around the world, but you'd be wrong. That would be very costly, all that bottling and transporting. Instead, it produces the syrup with which the drinks are made, and sells them to bottling companies. Diversification is also part of its strategy: It not only has a bunch of carbonated beverages under its roof, such as Sprite, Barq's, and Schweppes, but it also encompasses waters (such as Dasani, smartwater, and vitaminwater), coffees (such as Costa and Georgia), teas (such as Fuze Tea, Honest, and Gold Peak tea), juices (such as Minute Maid and Simply), energy and sports drinks (such as Powerade), and more. (The Coca-Cola brand, by the way, ranked sixth on Forbes' 2020 list of brand value, with a value pegged at $64 billion.)
Coca-Cola is not likely to grow at a rapid clip, but it is likely to grow. Its growth is partly organic, as the earth's population grows and more countries develop middle classes able to enjoy lots of carbonated treats, and partly via new product development and acquisitions. Coke has entered new markets over the years, such as water and coffee, which gives it new avenues for growth.
At the time of this writing, Coca-Cola shares are down about 19% from their 52-week high, and they're yielding 3.4%. That's a decent (and growing) payout to enjoy -- on top of likely stock price appreciation over the years.
3. Visa
Credit card juggernaut Visa (V +0.77%) is another business that's relatively easy to understand -- though, like Coca-Cola, its business model may surprise you. When you use a Visa card to charge a purchase, you're borrowing from a bank or other lender tied to the card -- not from Visa -- and that entity, not Visa, collects any interest payments you make. But Visa gets a percentage of every purchase you make, via fees charged to vendors. It's a modest percentage, but it adds up: Fees make up the bulk of Visa's revenue, and Visa raked in more than $21 billion in fiscal 2020.
Visa is another nimble company, adapting to changing times by offering new ways to pay such as tap-to-pay and new payment features, such as improved security via tokens. As digital payments increase globally in the coming years, Visa will benefit.
Visa does pay a dividend, and while its recent yield, at 0.6%, is rather paltry, it's growing briskly -- by an annual average of about 18% over the past five years. If it keeps growing at a similar rate for the next decade, its payout will roughly quintuple in size.
These are just three of many great stocks that beginning investors might consider. A little time spent reading and exploring online can easily yield other candidates. You might also just think about companies that you know well and patronize -- some of them may be contenders for your portfolio.
