If you are new to investing, you'll find there is a lot to learn, but you will also discover that investing doesn't really have to be that complicated. These two ideas seem at odds with one another but both can be true.
Wall Street tends to make things more complicated than they need to be, but if you take a long-term view and focus on good, solid companies, you can have success -- and learn as you go. An excellent way to get started is by investing in an exchange-traded fund that tracks a broad index like the S&P 500, because that gives you access to the biggest and best companies. But if you want to dip your toe into individual stocks, here are two great ones for beginners.
1. Amazon
Online retailer Amazon (AMZN 1.49%) is the fourth-largest company in the U.S. with a market cap of $1.1 trillion. Just last year, it became much more accessible to the average or new investor when it implemented a 20-for-1 stock split, which means the stock price was cut by a factor of 20 as each existing shareholder was given 20 shares for each share they held.
At the time the split was announced, one share of Amazon was trading at about $2,500. The split was effective last June, and each share now trades for about $115. Nothing fundamentally changed about the company as a result of the split, but it did was make the stock accessible to more investors who couldn't afford or didn't want to pay $2,500 for a single share.
That stock split coincided with a bear market that brought Amazon all the way down to $83 per share at the end of 2022. This year, the stock price is up about 35%. Investors have an incredible opportunity to buy one of the best companies on Earth -- one that has returned 23% per year during the past 20 years versus about 10% for the S&P 500 -- at a relatively affordable entry point.
Amazon still has the massive advantages that made it one of the best companies in the world. It is by far the leader in e-commerce, with a market share of 38%, while the next closest competitor is Walmart at 6%. With the e-commerce market expected to expand 12% annually between now and 2027, Amazon should see the lion's share of that growth. Also, Amazon Web Services is the biggest player in the cloud computing business with a 34% market share, which it increased last year. The next largest is Microsoft with a 21% share.
The global cloud computing market is expected to expand by 16% per year between now and 2032, so there are even bigger growth opportunities for the market leader here.
2. Visa
Payment processing giant Visa (V 0.95%) is another top 10 company in terms of market cap. It's a name you recognize, and it offers a product you use almost every day. If you are new to investing, here are a few things you should know about Visa and why it has been so dominant over the past few decades.
Visa has what is called a moat around its business, which means that it is insulated and protected from competition. It is one of only four credit card companies, and is by far the largest of the bunch, with some 53% of all total purchase volume occurring on its network. The second closest is Mastercard, with about 24% of purchase volume. The two companies account for more than three-quarters of the total volume.
The other advantage is its business model. Visa, along with Mastercard, is not a credit issuer, meaning it does not provide the credit for the purchase when the card is used. That is done by the issuing bank, such Capital One or Bank of America. When you pay off your card, you pay back those banks.
Visa and Mastercard partner with those issuers, providing the network for processing transactions. Visa generates revenue on every transaction, taking a so-called swipe fee, so it has none of the credit risk that banks have in lending the money.
It is an extremely simple business model with low risk, and it generates huge operating margins because outside of employees and technology, it doesn't have a lot of physical overhead, such as manufacturing facilities.
Visa has been able to generate about an 18% annual return over the past 10 years, which far outpaces the S&P 500 and the Nasdaq Composite. And with the world gradually moving away from cash to online and digital transactions, Visa is in prime position to grow with this trend.
Amazon and Visa have been very good to investors over the years and both are well positioned to continue their dominance in the years ahead. A new investor could do a lot worse than starting with these two blue chip stocks.
