Getting started on your investing journey can feel intimidating, but it doesn't need to be. One good rule of thumb to help overcome that intimidating feeling is to invest in companies you know and understand. Doing so can help you see potential problems early and get out before things go wrong.
Investors also want to look for a mix of growth and safety in the stock they consider. Established companies, called blue-chip stocks, can form a good base of support for your portfolio, much like a solid foundation forms a good base for building a house.
So if you're new to investing, you might to put these ideas to work in your diversified portfolio by getting to know these two growth stocks. They can offer a strong foundation for growth.
1. Alphabet: This company has a global monopoly on internet searches
Internet company Alphabet (GOOGL 1.20%) (GOOG 1.25%) has grown into one of the world's largest companies since it brought the Google search engine to market in the late 1990s. It then pulled off one of the most successful acquisitions in history by buying upstart YouTube in 2006 for $1.65 billion, a remarkable bargain in hindsight. Today, Google and YouTube are the most heavily trafficked websites in the world, and Google handles more than 90% of all global web searches.
While Alphabet has many businesses, including a cloud platform, an autonomous vehicle operator, a computer hardware and software creator, a smartphone operating system creator, and more, the company's bread-and-butter revenue producer is relatively straightforward. Roughly two-thirds of Alphabet's revenue comes from selling ads to the billions of monthly visitors on Google and YouTube. It's a very lucrative business, and Alphabet is remarkably profitable as a result. The company converts 21% of its revenue into free cash flow, which is huge when talking about nearly $285 billion in annual revenue.
GOOGL Revenue (TTM) data by YCharts
That gives Alphabet very deep pockets; the company has $115 billion in cash against just $11 billion in debt. That's a lot of money to invest in new products and strategic acquisitions, or repurchase shares. Alphabet is a $1.5 trillion company today, but it's not done growing. Analysts believe earnings-per-share (EPS) will grow by nearly 15% annually for the foreseeable future.
Alphabet's dominant and profitable core business, excellent balance sheet, and simple advertising business model make it an excellent pick for new investors looking for companies to build a portfolio around.
2. Meta Platforms: Dominating social media and not slowing down
It's not a stretch to say that most people are familiar with social media. After all, roughly 3.8 billion people use Facebook, Instagram, or WhatsApp monthly, and social media conglomerate Meta Platforms (META 2.44%) owns all three of them. While the morals of social media are up for debate (studies have shown similarities between addiction and how the brain responds to social media), there's little debate that it's a lucrative business.
Meta Platforms makes virtually all of its money from the advertisements that are seen by the billions of eyes that scroll its various free social media feeds. As with Alphabet, advertising to massive audiences has proven lucrative. Meta generates more than $117 billion in annual revenue, and much of that winds up as free cash flow. Meta has stepped up capital investments in recent years to build up its artificial intelligence and augmented reality businesses (which it calls Reality Labs). But it still brings in nearly $18 billion in annual free cash flow.
META Revenue (TTM) data by YCharts
Meta Platforms has been good to shareholders over the years. The company is known for massive share repurchase programs that shrink outstanding shares and drive EPS higher, and its share count shrank by more than 11% over the past five years. Additionally, Meta Platforms has a fortress-like balance sheet that holds $37 billion in cash against just $10 billion in debt.
The company has a lot of things going on. Reality Labs could someday become a contributor to Meta's bottom line, and its recently launched Twitter competitor Threads surged to more than 100 million users in just days. Analysts are optimistic, too, calling for EPS growth to average 22% annually over the coming years.
