If you're new to investing or just don't know where to start, a good option is to stick with industry leaders. They are profitable, established businesses that any type of investor can feel comfortable holding in their portfolio.
While these stocks aren't likely to suddenly jump in value in a short period, they can be safe places to park your money while you benefit from their long-term growth. In the past five years, all the stocks listed here have doubled in value and outperformed the S&P 500 (up 87% during that time).
The three stocks I'd suggest for beginners or risk-averse investors include UnitedHealth Group (UNH -0.64%), Amazon (AMZN 0.68%), and Walmart (WMT 0.46%). These businesses are all household names that likely need no introduction, but here's a quick rundown of what makes them great, safe investments to include in your portfolio.
1. UnitedHealth Group
UnitedHealth Group is the top healthcare stock in the world in terms of market capitalization with a valuation of approximately $500 billion. Last week, the company released its first-quarter results for 2021, again proving why this is an easy investment to justify. For the period ended March 31, revenue rose 14% year over year to $80.1 billion.
Its two main businesses -- UnitedHealthcare (which focuses on health benefits) and Optum (health services) -- grew at rates of 13.6% and 18.9%, respectively. Even though the company's medical care ratio (measuring medical costs vs. premium revenue) rose to 82% from 80.9% a year ago as a result of COVID-19, UnitedHealth still reported net earnings of $5.1 billion, which increased by 3.4% year over year.
The healthcare company is also continually on the lookout for new opportunities to add value and grow. In March, it announced a $5.4 billion acquisition of LHC Group, which provides in-home healthcare services and will be part of UnitedHealth's Optum Health business.
Getting bigger is arguably one of UnitedHealth's problems, however, as the company also has a pending $8 billion transaction to purchase health information services company Change Healthcare that is on hold as regulators are pushing back on it. While UnitedHealth says the deal will add efficiencies and allow it to make use of analytics and improve efficiency, the Department of Justice is concerned that the transaction will hurt competition if UnitedHealth could gain access to "competitively sensitive information" from its health insurance rivals. The companies have extended their merger agreement until the end of the year in the hopes that by then they will be able to overcome the legal challenge to their merger.
But whether or not that deal goes through, UnitedHealth will continue to have opportunities to explore, given its financial strength. As of March 31, it reported cash and short-term investments totaling $28.4 billion, and its cash from operating activities during the period totaled $5.3 billion. The company also pays its investors a dividend of 1%, which is a bit less than the S&P 500 average of around 1.4%.
Whether you're looking for some recurring cash flow or long-term growth, UnitedHealth can be a top investment to hang on to for decades.
Online retailer Amazon is an even richer behemoth that likely has more money than it knows what to do with. Its cash and marketable securities totaled more than $96 billion as of the end of last year. During the year, it also generated $46.3 billion from its day-to-day operating activities.
It may surprise you that the company's profit margin was just 7% last year -- and before the pandemic was normally even lower, below 5%. But when a business generates an incredible $469.8 billion in revenue, as Amazon did in 2021, there isn't a need to generate strong margins and still be incredibly profitable. Net income totaled $33.4 billion.
Another item that may come as a surprise is that despite its acquisition of Whole Foods and developing a successful cloud business in Amazon Web Services, its bread and butter still revolves around online stores and third-party seller services (e.g., fulfillment and shipping fees). Those two segments accounted for $325.4 billion in revenue last year, representing nearly 70% of Amazon's top line.
The tech company is still full of potential, which is why it's a safe growth stock to hold forever.
Big-box retailer Walmart is another no-brainer stock to buy if you're holding for the long term. It pays a yield of 1.4% and, like Amazon, generates strong profits not through high margins but through tons of volume. Its minuscule 2.4% net margin would spell trouble for many businesses. But with Walmart's massive sales (it generated $572.8 billion in revenue for the year ended Jan. 31) and ability to influence prices, it can ensure that its bottom line stays firmly in the black.
On the company's most recent earnings call, CEO Doug McMillon said that the company has been "finding a few places where we can roll back prices" in order to keep costs down amid rising inflation. Not many companies would be able to find places to reduce prices in the wake of inflation, but the sheer size of Walmart makes it the exception to that rule. And that's why this is not just a safe stock to hold right now, but also over the long term as the retail giant can adapt to any situation.
Its launch of Walmart+ in 2020 also signifies its unrelenting fear to go head-to-head with Amazon and its Prime service. By providing same-day delivery at thousands of stores (and for a comparable price to Prime), it can potentially steal some revenue from Amazon.
But rather than guess which of these two companies will come out on top, investors are better off simply investing in both of these excellent businesses.