With over 5,000 publicly traded companies in the U.S., when you first start investing, the possibilities can seem overwhelming. To make the search for great investments a little easier for beginners, we asked three of our contributors what they think is the single best stock for beginning investors.
Berkshire Hathaway's core business is insurance, and its many insurance subsidiaries are among the best in the world in terms of their diversity, capabilities, and pricing discipline. But Berkshire also has its hands in a number of other industries.
Berkshire invests in and outright buys companies with simple yet solid business models, strong pricing power, and unique competitive advantages. The quality and diversity of Berkshire's holdings helps the conglomerate to perform well in good economic environments and soundly beat the market in recessions.
Further, Berkshire's portfolio trades at a significant discount to the broader market. The S&P 500 is trading at a price-to-book value of 2.8, whereas Berkshire Hathaway is trading at a P/B of 1.5 -- a nearly 46% discount to the broad market.
Not only is the stock arguably undervalued, but you also get:
- A diversified portfolio of market leading companies such as Wells-Fargo, American Express, Coca-Cola, IBM, and many more.
- The opportunity to invest alongside some of the best investors in the world -- that is, Warren Buffett and Charlie Munger, who both have stunning track records of outperforming the broader stock market.
- Access to the Berkshire Hathaway annual meeting in Omaha, Neb., where you can meet other Berkshire shareholders and value-investing enthusiasts.
If you want some insight into how Buffett runs his company, you can read his famous annual letters to shareholders, which are essentially a complete business education in their own right. They will perhaps contain more information than you will know what to do with as a beginning investor, but you can revisit their timeless investing lessons over and over.
One type of stock that makes a good choice for beginning investors the kind that represents an entire industry. Integrated oil major Chevron (NYSE:CVX) is a great example of such a company, because it spans the gamut of energy operations, providing insight into multiple facets of the oil and gas industry.
Chevron's wide-ranging businesses are involved in every aspect of oil and gas operations. Its extensive exploration operations deal with harsh weather conditions on land and challenging environments in ultra-deepwater drilling. Chevron produces energy products and transports them through an extensive network of pipelines. It has its own refining capacity to convert crude oil into much-needed petroleum products, and it markets gasoline under its own brand name, as well as other brands.
With the energy industry suffering from low oil prices, Chevron shares have seen their price decline substantially. Yet in the long run, energy prices tend to be cyclical, making now a good time for beginners to consider investing in Chevron. New shareholders shouldn't expect a quick turnaround from the energy markets, but when it comes, Chevron should reward them well for their patience -- and give them a solid education on the energy sector in general.
The best kind of stock for new investors is one that is easy to understand and has solid long-term prospects -- and VF Corp (NYSE:VFC) has these qualities in spades. To start, VF Corp is the company behind more than a dozen popular outdoor and fashion names that appeal to a wide array of potential consumers, including Wrangler, Timberland, Vans, and 7 For All Mankind to name a few.
VF management is focusing the company's resources on aggressive growth in the U.S. and abroad, and those efforts are paying off in a big way. The company has grown sales from $7.7 billion in 2010 to $12.28 billion in 2014, and it has plans to grow by 38% to $17 billion by 2017. At the same time, the company's increasing scale is leading to higher gross and operating margins, leading earnings to grow faster than sales:
Since the end of the recession, VF Corp stock has destroyed the market's return, more than tripling the total returns of the S&P 500. Add in a decades-long history of regular dividend increases and a great leadership team that has executed on its strategy for growth, and VF Corp is a perfect place for new investors to get started.
Dan Caplinger owns shares of Berkshire Hathaway. Dan Dzombak has no position in any stocks mentioned and writes about happiness. Jason Hall owns shares of American Express, Berkshire Hathaway, Coca-Cola, and Wells Fargo. The Motley Fool recommends American Express, Berkshire Hathaway, Chevron, Coca-Cola, and Wells Fargo. The Motley Fool owns shares of Berkshire Hathaway, International Business Machines, and Wells Fargo and has the following options: long January 2016 $37 calls on Coca-Cola, short January 2016 $37 puts on Coca-Cola, short April 2015 $57 calls on Wells Fargo, and short April 2015 $52 puts on Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.