Instead of chasing big windfalls with high-risk stocks, new investors -- like all investors -- are usually best served by selecting companies with strong foundations and long-term viability. This is especially true when selecting tech stocks, because operating a business in the tech sector tends to be resource intensive, and investors can be left hurting when seemingly hotshot companies fail to keep up with the demands of the market.
To steer new investors away from a painful fate and get an idea of which tech companies could make strong picks, we asked three Motley Fool contributors to profile a stock that could be a foundation for a beginner.
Daniel B. Kline: When starting in the stock market, and when investing in general, one of the oldest axioms is to "buy what you know." That makes Comcast (CMCSA 2.68%) a perfect beginner stock because while the company has a number of segments, all of them are easy to understand.
In addition to owning NBC and a package of cable channels, Comcast has its broadband/pay-TV business, a movie division, and its theme parks. That gives investors a number of areas to watch, but all of them are fairly simple businesses. For example cable/broadband is subscriber and revenue-per-user driven. In a broad sense it's good if the company adds users and even better if it also increases how much it makes per subscriber.
Similarly, the theme park division is driven by attendance numbers while NBC and its various cable networks are powered by ad sales which tie in to ratings. Movies work more or less the same way. With films like Minions and Jurassic World last year, Comcast had a record year in its film business. That helped earnings which in turn covered up for weakness in the pay-TV business.
Of course, it's a little more complicated than that because capital expenditures in theme parks and budgets on films obviously impact the bottom line, but Comcast is a bunch of pieces which make sense without any sort of technical background. Most people don't understand the intricacies of bio-pharmaceutical companies or what makes oil prices fluctuate, but we understand, or at least have an opinion on whether Matt Damon returning as Jason Bourne in a Comcast/Universal movie will result in a hit.
Demitri Kalogeropoulos: For starter stocks, it's best to stick with industry leaders. There's no question who dominates the fast-growing video game publishing industry right now. Activision Blizzard (ATVI 0.91%) just announced that its Call of Duty franchise topped sales charts for the seventh consecutive year in 2015.
Three easy-to-follow trends are transforming Activision's business into a stronger, more valuable enterprise. First, new console gaming devices make it easier than ever to buy gaming content online. That's helped Activision's digital revenue recently pass 50% of sales, and, since the channel is more profitable than traditional retailing, margins should keep expanding as players increasingly skip the trip to the video game store.
Second, the publisher has built up its portfolio so that it no longer relies on just a few hit titles to deliver almost all of its profits. New blockbuster properties like Destiny, Hearthstone, and Overwatch take the pressure off the traditional workhorses of Call of Duty, World of Warcraft, and Skylanders. As a result, investors can look forward to more predictable growth in the years ahead.
And finally, Activision is about to close the books on its acquisition of mobile gaming giant King Digital (NYSE: KING), which will make it the largest game network in the world -- at 500 million engaged monthly players. The company can now add Candy Crush to its long list of industry-thumping video game franchises. With its top spot in an industry that has a bright growth outlook, Activision looks like a great stock for beginners.
Keith Noonan: An industry stalwart well-positioned to weather changes, Verizon (VZ 1.75%) stands out as a great stock for new investors because of its history of resilience, strong future prospects, and appealing dividend profile.
Many Americans already have some familiarity with Verizon products and services -- the company operates the largest 3G and 4G networks in America and has more than 137 million subscribers, and its structure and business model are relatively easy to understand. The company's business revolves around selling phone and Internet service, and operates in two main segments, with revenues from the wireline connections segment waning while wireless sales are on the rise.
The company has recently seen its revenue growth slow, but, priced at roughly 13 times forward earnings, the stock seems to be a good value and stands as a recommendable, low-risk starting point for those new to investing.
Verizon's dividend is a big part of why the stock is attractive for new and seasoned investors alike. Dividend payments are a way for companies to return income to shareholders, and often work to minimize a stock's risk and create reliable gains that can compound over the long term. Verizon has raised its dividend for 9 years running, and the stock's roughly 4.4% dividend yield is one of the best in the tech sector, while dwarfing the Dow average of roughly 2.5% and the 10-year Treasury Bond yield of roughly 1.8%.
With a strong business outlook and history of rewarding shareholders through dividend payouts, Verizon is a great stock for new investors.