News about the stock market and the global economy has many investors thinking the situation is pretty complicated right now. For many of those same investors, keeping their stock picks simple might just be the best strategy to address the complex financial world they operate in.
Here are three stocks that have straightforward investment narratives supporting long-term returns for different types of investors.
1. Nvidia
Nvidia (NVDA 2.69%) has one of the best growth outlooks among semiconductor stocks. The company is known for its graphics processing units (GPUs) that support high-end visual outputs that are often required for gaming and viewing rich media content.
Nvidia remains a powerful brand in that industry, but its long-term prospects are actually more varied. Its chips have become best-in-class products that are used on a number of high-growth applications, including data centers, automobiles, artificial intelligence, and cryptocurrencies. This gives the chipmaker some growth catalysts if customers across several growth industries ramp up demand.
Before buying Nvidia, investors should recognize that this is a growth stock in the highly cyclical semiconductor industry. That can result in volatility, which we saw inflict some damage on the stock price last year.
The stock's forward price-to-earnings (P/E) ratio is fairly high, having crept up to nearly 50 over recent months. That's not nearly as expensive as it's been in the past few years, but it's still expensive. This all comes with the territory for a stock like Nvidia, so investors should only get involved if they have a long-term view and can handle short-term volatility.
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2. PepsiCo
If you're wary of the risks associated with Nvidia, PepsiCo (PEP -0.09%) might suit you better, as an established leader in the global food and beverage industry.
The stock is not at all interesting from the perspective of growth, but it can be an absolute star for income investors and anyone trying to limit portfolio volatility. PepsiCo owns a massive portfolio of popular brands that include soft drinks, energy drinks, snacks, and a wide variety of food products. The company operates in just about any country that you can name.
It has successfully navigated deep recessions, economic booms, and rapidly evolving consumer tastes. PepsiCo just keeps on chugging along through all of it, slowly growing while producing more and more cash flow.
Shareholders have been a major beneficiary of this consistency. PepsiCo is a Dividend King, with 50 consecutive years of dividend growth. The stock has a 2.6% dividend yield, and the company's 64% payout ratio suggests that it isn't straining at all to maintain its shareholder distributions.
This is a straightforward business that warrants consideration from value investors, income investors, retirees, or anyone else who wants to balance out some growth stocks in their portfolio.
3. Costco
Costco Wholesale (COST -0.25%) straddles the line between growth and value. The discount-club chain is ultimately a low-margin retailer that's focused on consumer staples, so it's not a candidate to match the growth rates in the tech sector.
However, it has consistently delivered performance that outpaces expectations for most value stocks in the consumer staples sector. Costco's year-over-year revenue growth has remained above 6% over the past five years, approaching 20% in some quarters. That's quite uncommon among diversified retailers like this one.
The club membership model brings another key advantage. While retailing margins can be narrow, Costco generates a significant portion of operating profits from its annual membership fees. Member retention has been resilient across economic cycles, as consumers become focused on value during tough economic times. This brings stability to cash flows and creates some cushion for profits.
The stock's forward P/E is 35, which is a bit high for most growth investors, and its 0.7% dividend ratio is unlikely to excite anyone. That's why this is a hybrid sort of investment that might not be the first choice for either the growth or value crowd. Nonetheless, Costco is a remarkably stable business with above-average growth prospects that can be a straightforward addition to balance out any portfolio.
