The start of a new year brings with it some New Year's resolutions. One of your goals may be to invest in the stock market for the first time. Or perhaps you have started investing only recently and are interested in learning about stocks that can create a diversified portfolio.
One of the benefits of having a diversified portfolio of stocks is that it can spread the risk of an adverse event more broadly. For instance, if you only own stock in one electric vehicle company and it gets banned from selling its cars in the U.S., that could be devastating to your portfolio. However, if you own a broad portfolio of stocks that includes energy companies and other car companies, your portfolio as a whole may not be negatively affected at all. That's because the positive effect on others can offset the adverse impact on one stock.
Now that you are familiar with the benefits of diversification, here are five stocks that can start a diversified portfolio.
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Netflix
Netflix (NFLX -3.92%) is one of the pioneers of streaming content. The company has grown to 214 million subscribers and is on pace to generate $30 billion per year in revenue. Only 74 million subscribers are from the U.S. and Canada, so the company has a broad international presence.
In addition to growing revenue and subscribers, Netflix is expanding its operating profit margin at a healthy rate. Netflix would make an excellent stock to start a diversified portfolio.
Amazon
Adding Amazon (AMZN -1.64%) to a portfolio that starts with Netflix creates good diversification. While Netflix generates all its revenue and profits from streaming content, Amazon does so through e-commerce sales, cloud computing services, and, more recently, advertising.
In its most recent nine months, Amazon reported sales of $332 billion and operating profits of $21.4 billion. That's an increase from the $260 billion in revenue and $16 billion in operating profits it earned during the same last year.
Chipotle
So now, your portfolio consists of a streaming content provider and an e-commerce retailer. Add Chipotle (CMG 0.40%), a U.S.-focused fast-casual restaurant company, to further diversify this portfolio. Chipotle has 2,900 stores and is targeting a goal of more than 6,000.
What's more, Chipotle recently upgraded the annual sales target it thinks its restaurants can achieve from $2.5 million to $3 million.
Chegg
Sticking to the plan, you can add Chegg (CHGG -0.29%) to the portfolio that already consists of Netflix, Amazon, and Chipotle. Chegg is an online education technology company focused on helping college students get through the curriculum. Students can use Chegg whether their courses are online or in person.
Chegg has increased revenue at an accelerating rate over the last few years: 26% in 2018, 28% in 2019, and 57% in 2020. An impressive part of that revenue is flowing to the bottom line, and operating profits expanded from -$6 million in 2018 to $57 million in 2020.
Meta Platforms
Last but not least, include Meta Platforms (META -0.52%) in your portfolio. The company, formerly known as Facebook, boasts over 3.5 billion monthly active users on its family of social media apps, including Facebook, Instagram, and WhatsApp.
Meta generates nearly all its revenue from advertisers looking to gain the attention of the 3.5 billion users that spend time browsing on the family of apps. Meta's users come from all parts of the world except for China, so it also has geographical diversification.
Meta has increased revenue at a compounded annual rate of 45.8% over the last decade. More importantly, it has grown earnings per share at a compounded annual rate of 50.4% during the same time.
The five to buy
While not completing a diversified portfolio, Netflix, Amazon, Chipotle, Chegg, and Meta Platforms start a good one. The companies each earn most of their revenue from different sources (i.e., food sales, college students). For those new to in investing, these five stocks can start you off on the right path to diversification.
