Here are three stocks that have simple investment narratives that support long-term returns for different types of investors.
1.NVIDIA
Nvidia NVDA Inc. (NVDA 0.59%) has one of the best growth prospects among semiconductor stocks. The company is known for its graphics processing units (GPUs), which support high-end visual outputs, often needed for gaming and viewing multimedia content.
Nvidia remains a powerful brand in this space, but its long-term outlook is actually more mixed. Its chips have become best-in-class products that are being used in a variety of high-growth applications, including data centers, automotive, artificial intelligence, and cryptocurrencies. This offers the chipmaker some growth catalysts if customers in various growing sectors increase demand.
Before buying Nvidia, investors should recognize that it's a growth stock in the highly cyclical semiconductor sector. This can lead to volatility, which we've seen inflict some damage on the stock price over the past year.
The stock's price-to-earnings (P/E) ratio is quite high, having risen to nearly 50 in recent months. It's not as expensive as it was in recent years, but it's still expensive. All of this comes with the territory for a stock like Nvidia, so investors should only get involved if they have a long-term vision and can handle short-term volatility.
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2. Pepsi Co
If you are wary of the risks associated with Nvidia, PepsiCo (PEP 0.95%) may be a better fit for you, as an established leader in the global food and beverage industry.
The stock is hardly attractive from a growth perspective, but it could be an absolute star for income investors and those looking to limit portfolio volatility. PepsiCo has a large portfolio of popular brands that include soft drinks, energy drinks, snacks, and a wide variety of food products. The company operates in almost every country you can name.
Having successfully navigated deep recessions, economic booms, and rapidly changing consumer tastes, PepsiCo continues to bite the bullet, growing slowly and generating ever-increasing cash flow.
Shareholders have been the main beneficiaries of this consistency. PepsiCo is a Dividend King, with 50 consecutive years of dividend growth. The stock has a dividend yield of 2.6%, and the company's payout ratio of 64% suggests it makes no effort to maintain shareholder distributions.
This is a simple trade that deserves consideration for value investors, income investors, retirees, or anyone else looking to balance some growth stocks in their portfolio.
3. Cost
Costco Wholesale (COST -0.63%) is on the cusp of growth and value. The discount club chain is ultimately a low-margin retailer focused on basic consumer goods, so it's not a candidate to match the growth rates of the technology sector.
However, it has consistently performed well above expectations for most value stocks in the consumer staples sector. Costco's year-over-year revenue growth has remained above 61TP3Q for the past five years, reaching 201TP3Q in some quarters. This is quite rare among diversified retailers like this.
The club membership model offers another important benefit. While retail margins may be thin, Costco generates a significant portion of its operating profits from annual membership fees. Member retention has weathered economic cycles, as consumers focus on value during tough economic times. This brings stability to cash flows and creates a cushion for profits.
The stock's forward P/E ratio is 35, which is a bit high for most growth investors, and its dividend ratio of 0.7% is unlikely to excite anyone. This is why this is a hybrid investment that may not be the first choice for growth or value investors. Still, Costco is a remarkably stable company with above-average growth prospects that could be an easy addition to balance any portfolio.
Ryan Downie holds positions at Nvidia. The Motley Fool has locations and recommends Costco Wholesale and Nvidia. The Motley Fool has a disclosure policy.
