Starting a portfolio from scratch can be a daunting task. Knowing where to start is tough, and you don't want to be overweighted toward one industry. While a well-diversified portfolio consists of at least 25 stocks, here are the first five I'd buy if I had to start over today.
Alphabet
Large-cap tech companies make up a massive amount of the market, and Alphabet (GOOG -0.86%) (GOOGL -0.83%) is one of the best. With its fingers in advertising, cloud computing, and artificial intelligence (AI), its reach is quite impressive.
I think it's an excellent addition to a beginner's portfolio because of its low risk. Alphabet has nearly $140 billion in cash and equivalents on its balance sheet, and produced more than $16 billion in free cash flow (FCF) in Q4 alone. It also has top advertising properties with the Google search engine and YouTube, so revenue is dependable. It also has high-upside investments in artificial intelligence (AI) and cloud computing, so the company is set up for a bright future.
The stock trades at a historically low price-to-earnings ratio of 23, making it look like a great time to take a position in the stock.
Airbnb
When a company's name has become a verb or a noun, it's a great sign the company has strong brand power. Airbnb (ABNB -0.96%) has become that for alternative stays, and fills the large-cap growth spot in a properly varied portfolio.
In Q4, Airbnb's revenue grew an impressive 24% to $1.9 billion, converting $455 million into FCF. Despite many investors worrying about how Airbnb would perform as the consumer gets weaker, Airbnb continues to post market-crushing results each quarter, and guided for an impressive Q1 thanks to a strong backlog.
With the stock trading at a reasonable 24 times FCF, Airbnb looks like a great buy right now.
Costco
You can't just fill a portfolio full of growth-oriented tech stocks; you have to expand into some other industries. Costco (COST 0.12%) is a perfect counterbalance, as its membership-driven bulk warehouse chain has been a stalwart for over a decade.
Costco's revenue won't blow your socks off -- it rose 5.2% company-wide in its Q2 ended February 1, 2023. However, Costco makes investors money by growing its earnings at a market-beating pace. Earnings per share (EPS) rose 13% in Q2, which will only increase when Costco eventually decides to raise its membership fee (likely sometime this year).
You must pay a premium to own Costco's stock, which trades for 37 times earnings. But it has earned this premium through consistent execution and a loyal membership following.
Visa
Changing gears, Visa (V -0.13%) is vital to the modern, cashless payment processing system. As long as consumers keep swiping their cards, its revenue will continuously grow.
Visa is another steady stock that can balance out riskier investments but also delivers strong growth. In Q1 of FY 2023 (ending December 31), its net revenues rose 12%, while EPS jumped 8%. This continues the steady revenue growth Visa has delivered over the past decade-plus.
V Revenue (Quarterly YoY Growth) data by YCharts
Visa is a strong candidate for your portfolio due to its consistent revenue growth and strong results. Along with Costco, it forms a solid foundation to add more growth-oriented names.
CrowdStrike
Speaking of growth, CrowdStrike (CRWD -1.12%) should be at the top of your list for high-upside investments. It's a top cybersecurity provider, and has the business growth to prove it.
In Q4 of FY 2023, CrowdStrike's annual recurring revenue rose 48% to $2.56 billion. While CrowdStrike isn't profitable, it does produce strong FCF, generating $209 million in Q4. Being unprofitable shouldn't scare you away, as CrowdStrike is making that choice to capture as much of its massive market as possible.
Investing in CrowdStrike requires a long-term perspective of three to five years, as the stock price may fluctuate greatly in the short term due to the stock's rich valuation. You should avoid getting too caught up in the momentary ups and downs of the stock price -- it's the long-term trend that matters. If you can handle that, CrowdStrike has the most significant potential upside of any stock on this list.
This group of five stocks is a great place to start, but there are more industries and company sizes to consider when expanding your portfolio to 25 or more stocks. With some research, you can have a portfolio primed to beat the market over the long term in no time.
