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When it comes to financial fortitude, building a sturdy base early on proves paramount for young investors selecting stocks. Harnessing the might of compounding makes even minor investments burgeon significantly over extended spans. Essentially, small and steady contributions have the ability to morph into a substantial nest egg eventually. The historical performance of the S&P 500 index, boasting an average 10% annual return with dividend reinvestment, illuminates the wealth-amassing prowess of equities. The crux lies in wise investments, specifically in potent stocks that offer prolonged growth.
Yet, delving through numerous stocks and navigating the labyrinth of ETFs can breed unease. This piece aims to streamline the procedure, especially for young readers. Today, we delve into three stocks tailored for young investors, paving the way to steady wealth creation in the forthcoming years.
Berkshire Hathaway (BRK-A, BRK-B)
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Distinguished for its unparalleled long-range record, Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) is spearheaded by the legendary investor Warren Buffett. Berkshire Hathaway’s annual shareholder summits, where Buffett and cohorts dispense sagacious insights, draw investor attention like moths to a flame.
Over the past six decades, Berkshire Hathaway shares have burgeoned at a commendable 20% compound annual growth rate, overshadowing the S&P 500 by a substantial margin. The marvel of compounding has yielded exceptional returns for shareholders, rendering it a captivating choice among our offerings for young investors.
Berkshire prioritizes procuring top-notch companies with robust competitive edges and solid balance sheets. Management unveiled the fourth-quarter and full 2023 results in late February. Net earnings tallied at $17.36 per share, compared with $8.24 for the equivalent period a year prior. Furthermore, the full-year earnings per share (“EPS) for 2023 stood at $44.27 versus a loss of $10.33 for 2022. Apart from a surge in operating earnings, the company’s cash reserves soared to historic levels.
Thus far in 2024, BRK-B shares have ascended 16%, trading at 21.9 times forward earnings. Simultaneously, BRK-B’s 12-month median price forecast hovers at $453.61, offering an upside potential of 9% from current levels. Acquiring a slice of Berkshire Hathaway could be a shrewd maneuver for young investors endeavoring to construct long-lasting wealth.
Shopify (SHOP)
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Pioneering e-commerce platform provider Shopify (NYSE:SHOP) takes the next spot among our recommended stocks for young investors. The corporation reaps sizable benefits from the enduring push towards online shopping globally.
Revenue in the fourth quarter soared 24% year-over-year (YOY) to $2.14 billion, translating to even sturdier 30% growth after adjusting for the sales of its logistics businesses. Adjusted EPS likewise surged, reaching $0.34 compared to $0.07 in the prior-year quarter. Free cash flow quadrupled YOY as the entity delved deeper into positive cash flow terrain.
E-commerce is anticipated to sustain vigorous growth in the approaching years, with Shopify positioned at the epicenter of this wave, furnishing merchants with an all-inclusive platform. With enlarging margins, a loyal customer base, and a commitment to innovation, analysts predict a 35% revenue surge in 2024.
Nevertheless, SHOP shares have dwindled 4% year-to-date (YTD), presenting a favorable entry point for new investors. However, it’s worth noting that shares still command a premium at 14x trailing sales. The 12-month price target of $85.00 from Wall Street indicates a prospective upside of roughly 14% from current levels. While Shopify’s share price may exhibit volatility throughout the year, long-standing investors could perceive $70 as a more prudent entry point.
SPDR S&P 500 ETF (SPY)
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As one of the most actively traded ETFs globally, the SPDR S&P 500 ETF (NYSEARCA:SPY) stands as the final entrant on our roster of stocks for young investors. The SPY fund traces the performance of the benchmark S&P 500 index, gauging the stock performance of the largest publicly-traded 500 companies stateside, encapsulating around 80% of the overall U.S. stock market value.
SPY furnishes broad exposure to the growth and profitability potentials of these U.S. enterprises, mitigating the risk of single-stock concentration. Owing to its capitalization-weighted configuration, giant, well-grounded firms hold a substantial weight within the index, influencing their comprehensive performance.
Debuting in 1993 as the premier US-listed ETF, SPY clutches over $530 billion in assets. The five foremost names in SPY encompass Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), NVIDIA (NASDAQ:NVDA), Amazon (NASDAQ:AMZN), and Meta Platforms (NASDAQ:META), constituting a quarter of the fund’s lineup.
SPY has soared 8% YTD, whereas the fund’s top 10 holdings have markedly outperformed the broader market. Nevertheless, the current valuation appears marginally dear, with trailing price-to-earnings (P/E) and price-to-book (P/B) ratios of 22.0 and 4.5, correspondingly. A probable dip towards $500 or lower during the impending earnings season could signify a more opportune entry point for long-haul investors.
On the publication date, Tezcan Gecgil had no positions (either directly or indirectly) in the securities mentioned. The viewpoints expressed in this article emanate from the writer and adhere to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, PhD, commenced contributing to InvestorPlace in 2018. Armed with over two decades of experience in the U.S. and U.K., she has also conquered all three levels of the Chartered Market Technician (CMT) examination. Publicly, she has contributed to investing.com and the U.K. website of The Motley Fool.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
