In this article, we take a look at 10 best stocks to buy for an 18 year old.
The broader stock market has declined substantially in bear markets.
During the Great Recession, for example, the S&P 500 declined almost 57% from its peak in 2007.
Nevertheless, the market has risen over the long term. The S&P 500 is more than double its 2007 peak for instance.
Given they are young, many 18 year olds have the advantage of being long term investors. As a result, they can have longer holding periods.
With longer holding periods, the broader market benefits from population growth and productivity growth. With more population, there are more consumers and potentially more demand for products and services. With more productivity growth, more products and services could be produced in total.
Over the long term, the broader market also benefits from factors such as companies buying back their stock. If a company buys back its stock and doesn’t issue any new ones, a company’s EPS could rise even if its earnings stays the same.
In terms of the best stocks to buy for an 18 year old, the best stock to buy is probably a popular low cost S&P 500 index fund like SPDR S&P 500 ETF Trust (NYSE:SPY).
Not only is there built-in diversification with SPDR S&P 500 ETF Trust (NYSE:SPY), but there is also relatively low fees involved.
According to the ETF, SPDR S&P 500 ETF Trust (NYSE:SPY) has a gross expense ratio of 0.0945%. In terms of the fund characteristics, the ETF has as of February 14, an estimated 3-5 year EPS growth ratio of 11.86%, a price to cash flow ratio of 14.22, and a price to earnings ratio of 20.72.
If the SPDR S&P 500 ETF Trust (NYSE:SPY) isn’t an option, the best stocks to buy are arguably quality blue chips with substantial competitive advantages and wide moats.
With competitive advantages such as strong brands and substantial scale, the companies could find it easier to maintain or grow their profitability through market cycles than companies with less of a competitive advantage.
Given some companies underperform even when they have many competitive advantages, it could be a good idea for long term investors to own a well diversified portfolio of leading stocks across many different sectors.
In terms of the stocks to own in the future for an 18 year old, big tech blue chips that trade for fair valuations and that also have potential growth opportunities in AI are potential candidates for investment as well.
Photo by Sunrise King on Unsplash
Methodology
For our list of 10 Best Stocks to Buy for an 18 Year Old, we chose 10 stocks with substantial competitive advantages and wide moats. We ranked them based on their market capitalization as of 2/15.
For those of you interested, check out 15 Most Profitable Dividend Stocks.
10 Best Stocks to Buy for an 18 Year Old
10. BlackRock, Inc. (NYSE:BLK)
Market Capitalization as of 2/15: $108.45 billion
Although it might have the smallest market capitalization on our list, leading asset manager BlackRock, Inc. (NYSE:BLK) is still a giant given its AUM of $8.594 trillion as of Q4 2022. From 2016 to 9/30/21, the company has increased its AUM 86% and there is more AUM growth potential in the next 10 years given the continued capital inflows. If BlackRock, Inc. (NYSE:BLK) grows its AUM over time, the company’s normalized earnings potential could also increase over time. For full year 2022, the company had adjusted EPS of $35.36 and the company returned $4.9 billion to shareholders including $1.9 billion in share repurchases.
Alongside Alphabet Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc. (NASDAQ:AAPL), BlackRock, Inc. (NYSE:BLK) is a stock with substantial competitive advantages that could be a candidate for investment for an 18 year old.
9. The Home Depot, Inc. (NYSE:HD)
Market Capitalization as of 2/15: $326.84 billion
The Home Depot, Inc. (NYSE:HD) is the world’s largest home improvement retailer with third quarter fiscal 2022 sales of $38.9 billion. For the period, The Home Depot, Inc. (NYSE:HD)’s overall comparable sales rose 4.3% year over year with comparable sales in the United States rising 4.5% year over year. For fiscal 2022, the company sees comparable sales grow of approximately 3%, operating margin of approximately 15.4%, and diluted earnings per share percent growth of mid single digits. Given its substantial scale, The Home Depot, Inc. (NYSE:HD) has higher margins than many of its competitors and the company also has a dividend yield of 2.37% as of 2/15.
8. Walmart Inc. (NYSE:WMT)
Market Capitalization as of 2/15: $395.27 billion
Leading retailer Walmart Inc. (NYSE:WMT) ranks #8 on our list of 10 Best Stocks to Buy for an 18 Year Old given its market capitalization of $395.27 billion as of 2/15. In its third quarter of FY2023, Walmart Inc. (NYSE:WMT)’s total revenue rose 8.7% year over year to $152.8 billion and the company also earned an adjusted EPS of $1.50, up 3.4% year over year. In terms of EPS estimates, analysts expect Walmart Inc. (NYSE:WMT) to earn $6.08 per share in 2023, $6.53 per share in 2024, and $7.14 per share in 2025. As of 2/15, the company has a forward P/E ratio of 22.55 and a dividend yield of 1.53%.
7. Johnson & Johnson (NYSE:JNJ)
Market Capitalization as of 2/15: $416.67 billion
Johnson & Johnson (NYSE:JNJ) is a healthcare conglomerate that has raised its annual dividend for 61 straight years through multiple recessions. For full year 2022, Johnson & Johnson (NYSE:JNJ)’s worldwide sales rose 1.3% year over year to $94.9 billion, with U.S. sales rising 3% year over year to $48.6 billion. Adjusted EPS was $10.15 in 2022, up from $9.80 in 2021. As of 2/15, Johnson & Johnson (NYSE:JNJ) has a forward P/E ratio of 14.59 and a dividend yield of 2.84%.
6. JPMorgan Chase & Co. (NYSE:JPM)
Market Capitalization as of 2/15: $421.79 billion
JPMorgan Chase & Co. (NYSE:JPM) is one of the big four American banks with a market capitalization of $421.79 billion as of 2/15. For its fourth quarter, JPMorgan Chase & Co. (NYSE:JPM) CEO Jamie Dimon said, “JPMorgan Chase reported strong results in the fourth quarter as we earned $11.0 billion in net income, $34.5 billion in revenue and an ROTCE of 20%, while maintaining a fortress balance sheet and making all necessary investments. This robust earnings generation combined with the execution of our capital strategy allowed us to exceed our CET1 target of 13% one quarter early, and we have the ability to resume stock buybacks this quarter, as we deem appropriate. Looking further ahead, we still await details of the Basel III finalization package, but we will manage to the new requirements as we have demonstrated in the past.”
As of Q4, JPMorgan Chase & Co. (NYSE:JPM)’s book value per share also increased to $90.29, up 3% year over year. Tangible book value per share was $73.12, up 2% year over year.
Like JPMorgan Chase & Co. (NYSE:JPM), Alphabet Inc. (NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc. (NASDAQ:AAPL) are stocks with substantial competitive advantages that could be investment candidates for an 18 year old.
5. Meta Platforms, Inc. (NASDAQ:META)
Market Capitalization as of 2/15: $459.31 billion
Meta Platforms, Inc. (NASDAQ:META) is a social media giant with a market capitalization of $459.31 billion as of 2/15, ranking #5 on our list of 10 Best Stocks to Buy for an 18 Year Old.
After declining substantially last year given increasing competition from TikTok and the company’s losses in terms of its metaverse effort, Meta Platforms, Inc. (NASDAQ:META) shares have surged 47.22% year to date in 2023. Despite TikTok, Meta Platforms, Inc. (NASDAQ:META)’s 2022 sales decreased 1% year over year to $116.61 billion and rose 4% year over year on a constant currency basis.
As of December 31, 2022, the company had $10.87 billion available and authorized for repurchases and the company’s board has since increased its share repurchase authorization by $40 billion. Given how transformative AI could be, many investors also believe Meta Platforms, Inc. (NASDAQ:META) has earnings growth potential in the long term given the company’s investments in the area over the past decade.
4. Amazon.com, Inc. (NASDAQ:AMZN)
Market Capitalization as of 2/15: $1.04 trillion
Amazon.com, Inc. (NASDAQ:AMZN) is a trillion dollar company with a leading e-commerce and cloud business. In the fourth quarter of 2022, Amazon.com, Inc. (NASDAQ:AMZN)’s net sales rose 9% year over year to $149.2 billion with AWS segment sales rising 20% year over year to $21.4 billion. For full year 2022, the company’s net sales rose 9% year over year to $514 billion with AWS segment sales increasing 29% year over year to $80.1 billion.
Amazon.com, Inc. (NASDAQ:AMZN) CEO Andy Jassy said, “Our relentless focus on providing the broadest selection, exceptional value, and fast delivery drove customer demand in our Stores business during the fourth quarter that exceeded our expectations—and we’re appreciative of all our customers who turned to Amazon this past holiday season. We’re also encouraged by the continued progress we’re making in reducing our cost to serve in the operations part of our Stores business. In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon.”
3. Alphabet Inc. (NASDAQ:GOOG)
Market Capitalization as of 2/15: $1.24 trillion
Alphabet Inc. (NASDAQ:GOOG) shares have fallen 28.23% in the last year but are up 9.43% year to date as the market weighs on how the new AI powered Bing will affect the search giant’s earnings in the future. While AI makes mistakes, Bing could gain market share from Google and also potentially increase costs. Nevertheless, Alphabet Inc. (NASDAQ:GOOG) has leading AI technology of its own that could help it grow its earnings in the long term. As it stands, Alphabet Inc. (NASDAQ:GOOG) is the riskiest company in this list given the competition but the tech giant also has substantial potential.
L1 Capital International Fund commented on Alphabet Inc. (NASDAQ:GOOG) in a Q3 2022 investor letter,
Two companies, Amazon.com (Amazon) and Alphabet Inc. (NASDAQ:GOOG), detracted more than 0.5% (in AUD) from the Fund’s returns. Both companies reported Q3 2022 quarterly results that were modestly below our expectations. Alphabet’s share price was impacted by concerns that macroeconomic pressures will impact advertising spend, increased commentary that Alphabet’s core search business could be disrupted by open artificial intelligence technologies, particularly from OpenAI’s ChatGPT chatbot (Microsoft is rumoured to be investing $10 billion in OpenAI with the aim of incorporating the technology into Bing, Word and email). Alphabet’s growth in employee numbers is also expected to pressure profitability in a more subdued economic environment.
We have allowed for a softening in advertising in our base case expectations and believe Alphabet’s management will be under increasing pressure to take action to manage its cost base, as many other technology businesses have already done, including Amazon. Disruption to search remains an issue to monitor. However, we consider Alphabet to be at the forefront of developments in artificial intelligence and well placed to defend its core franchise.
2. Microsoft Corporation (NASDAQ:MSFT)
Market Capitalization as of 2/15: $2 trillion
In addition to having a leading computer operating and cloud business, Microsoft Corporation (NASDAQ:MSFT) is one of the current leaders in AI given its $10 billion investment in OpenAI whose app ChatGPT has reached 100 million users just two months after its launch. While OpenAI’s ChatGPT is inaccurate sometimes, the app has experienced substantial demand and Microsoft Corporation (NASDAQ:MSFT) has also incorporated ChatGPT into Bing to potentially gain market share. Microsoft Corporation (NASDAQ:MSFT) has substantial EPS growth potential in the future if it does well in AI.
1. Apple Inc. (NASDAQ:AAPL)
Market Capitalization as of 2/15: $2.46 trillion
Apple Inc. (NASDAQ:AAPL) ranks #1 on our list of 10 Best Stocks to Buy for an 18 Year Old given its market capitalization of $2.46 trillion. In addition to having considerable market share in the developed world, Apple Inc. (NASDAQ:AAPL) is one of the few big tech companies that has been very profitable in China. In terms of the future, Apple Inc. (NASDAQ:AAPL) is currently trying to expand its business in India, which if successful could help EPS growth in the future.
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Disclosure: None. 10 Best Stocks to Buy for an 18 Year Old is originally published on Insider Monkey.
