3 Easy-to-Understand US Stocks to Start Your Investing Journey in 2021
If you are planning to start investing this year…
We’ve previously created an ultimate investing guide to help you with your investing journey.
Once you have gained sufficient knowledge such as understanding financial statements and the likes, you might want to consider picking individual stocks.
Here, we will discuss three US-listed stocks that you can consider researching and buying for 2021 and beyond.
(We have also covered Singapore beginner stocks if you prefer investing locally.)
Without further ado, let’s jump right in!
Beginner Stock #1: Adobe
Adobe Inc (NASDAQ: ADBE) is one of the world’s largest and most diversified software companies, providing products and services used by creative professionals, communicators, and consumers.
Here are some of the products offered by Adobe, which includes well-known ones like Illustrator, Photoshop, and Acrobat (which we use to open files with the Portable Document Format (PDF) format):
For its latest 2020 fiscal year, Adobe’s total revenue grew 15% year-on-year to US$12.9 billion while its earnings surged 78% to US$5.3 billion.
Over the longer term, both its revenue and earnings have been growing consistently year after year.
There’s potential for Adobe to keep on growing.
Adobe’s 2020 revenue of US$13 billion is small compared to its 2023 total addressable market (TAM) of US$147 billion. TAM is the total market opportunity available for the company to capture.
Risk wise, an immediate caution would be its clients postponing implementation of services and reducing their expenses due to COVID-19, which is seeing a resurgence in many countries.
In its 2020 annual report, Adobe cited that due to its subscription-based business model, the effect of the pandemic may not be fully reflected in its results of operations until future periods.
At Adobe’s stock price of US$476.28, it has a price-to-earnings (P/E) ratio of 44x.
Beginner Stock #2: Apple
Apple (NASDAQ: AAPL) is a brand that doesn’t need much introduction.
I don’t know how to put it without sounding like Captain Obvious, but it’s the company behind the iPhones many of us are carrying.
Over the past five years, Apple has seen stable growth in its business, as seen from the table below:
|Net income margin||21%||21%||22%||21%||21%|
|Free cash flow |
Continuing on from its past growth, Apple just announced strong quarterly financial results for its fiscal 2021 first quarter.
Apple’s revenue hit an all-time record of US$111.4 billion, up 21% year-on-year, while earnings per diluted share surged 35% to US$1.68.
Apple’s chief financial officer, Luca Maestri, said the following in Apple’s latest earnings release:
“Our December quarter business performance was fuelled by double-digit growth in each product category, which drove all-time revenue records in each of our geographic segments and an all-time high for our installed base of active devices. These results helped us generate record operating cash flow of US$38.8 billion. We also returned over US$30 billion to shareholders during the quarter as we maintain our target of reaching a net cash neutral position over time.”
But the risk in China is real as there’s keen smartphone competition there, so this is something investors should be aware of.
At Apple’s share price of US$142.06, it has a P/E of 38x and a dividend yield of 0.6%.
Beginner Stock #3: Autodesk
If you learnt engineering in school, you would have probably used Autodesk, Inc‘s (NASDAQ: ADSK) AutoCAD.
AutoCAD is a computer-aided design (CAD) software that architects, engineers, and construction professionals rely on to create accurate 2D and 3D drawings.
Autodesk seems to be following the playbook of Adobe, which moved into a subscription business model in 2012, and has seen strong growth ever since.
Autodesk stopped the sale of new commercial licenses of most individual software products in 2016 and started a program in 2018 to shift users to its subscription plans.
Since then, a substantial majority of its legacy maintenance plan customers have converted to subscription plan offerings. Those still on the legacy plans have till 7 August 2021 to convert to a subscription.
The subscription model is better for the business as it provides recurring revenue and ultimately free cash flow as well.
Similar to Apple, AutoCAD has been producing copious amounts of free cash flow, which can be used by the company to reinvest into its own business, acquire other businesses, and buy back its own shares.
It’s not all a bed of roses for Autodesk though.
The company cited repercussions from the pandemic as a risk in its annual report:
“Due to our subscription-based business model, the effect of COVID-19 may not be fully reflected in our results of operations until future periods, if at all. If economic growth in countries where we do business slows or if such countries experience further economic recessions, customers may delay or reduce technology purchases. Our customers include government entities, including the U.S. federal government, and if spending cuts impede the ability of governments to purchase our products and services, our revenue could decline.”
At Autodesk’s share price of US$273.47, it has a P/E ratio of 142x.
The Three Companies Are Not Automatic Buys
While it may be tempting to go and purchase those stocks discussed without any due diligence, that’s not how we should approach investing.
Investors should ensure they understand the businesses intimately before putting their hard-earned money into the shares.
Since the companies are high-quality ones, they may trade at expensive-looking valuations. Investors must be comfortable with this as well.
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock. The writer owns shares in Adobe and Apple.