The stock market has a tendency to intimidate would-be investors. However, we at The Motley Fool believe that with a little patience and the right stocks, almost anyone can succeed in the stock market. The trick is finding the best stocks for your investing style, and letting the value of those investments appreciate over time.
Consumer goods stocks offer a great starting point for beginners because of their easy-to-understand business models. I’ve included two food stocks below, each with an attractive risk-reward balance for the novice investor.
Before we dive into specific stocks, new investors with less starting capital should first take advantage of online discount brokerage companies, such as TD Ameritrade Holding Corp. (NYSE:AMTD). In addition to affordable online stock trading, TD Ameritrade Holding Corp. (NYSE:AMTD) also offers free in-depth courses and educational resources for beginning to intermediate-level investors.
Of course, TD Ameritrade Holding Corp. (NYSE:AMTD) is one of many brokerage companies available to you. Fortunately, the Fool’s brokerage comparison tool can help you find the best fit for your investing needs. Now let’s look at some stock selections that are well suited to stock-market newbies.
Why invest in stocks?
Historically, stocks have provided the highest returns of all other investments over the long term. Still, not all stocks are created equal.
Take Noodles & Co (NASDAQ:NDLS), for example. The fast-casual dining chain hit the public market running last month, with the stock’s IPO more than doubling in value. This enthusiasm from investors seems promising until you consider that the stock now trades at nearly 430 times earnings. Yikes.
For comparison, the S&P 500 currently commands a price-to-earnings ratio of 19. The excessive run-up in Noodles & Co (NASDAQ:NDLS)’s stock coupled with the fact that it is new to the public market make it a far riskier bet than rival fast-casual stocks such as McDonald’s Corporation (NYSE:MCD). Not only is Mickey D’s a well-established company with a proven track record of positive earnings, but it’s also a “blue chip,” which is considered one of the best stock categories for new investors.
Blue chips are large-cap companies with stable profits and reliable growth. Together, these factors help minimize the long-term risk in stocks like McDonald’s Corporation (NYSE:MCD). Less risk can be a beginner’s best friend.
Another factor that makes McDonald’s Corporation (NYSE:MCD) stock less risky for investors is the fact that roughly 81% of its restaurants are franchised. This type of business model is a positive for shareholders because instead of spending capital on its restaurants, McDonald’s Corporation (NYSE:MCD) owns the land each franchise sits on and collects rent payments and royalties from those franchisees.