In this article, we discuss the 10 best stocks to buy for your child. If you want to skip our detailed analysis of these companies, go directly to the 5 Best Stocks to Buy for Your Child.
While gifting a portfolio of growth stocks may not be as entertaining as Hot Wheels, LEGO, or a Nintendo Switch, they can give your children long-term value. Given the current state of the world’s economy, it makes sense to teach your child the importance of putting their money to work for them. Just like when Tesla, Inc. (NASDAQ: (TSLA)) founder bought Dogecoin for his son, so he can be a “toddler hodler”. One best way to introduce stock investing to a young child is to buy shares in companies familiar to them like social networking site Facebook, Inc. (NASDAQ: FB), fast-food giant McDonald’s Corporation (NYSE: MCD), and entertainment firm and theme park operator The Walt Disney Company (NYSE: DIS).
One of the most compelling reasons to build a portfolio for your child as early as now is to plan for their future. If you want to raise a future billionaire, you may also learn from Warren Buffett, the legendary investor who made his first stock buy when he was 11 years old. The self-made billionaire began his investing career by purchasing three shares of oil company Cities Service at around $38 per share and selling the stock at $40, making a $2 profit per share. Today, the Oracle of Omaha owns and operates one of the top hedge funds in the market, Berkshire Hathaway with a portfolio value of $270,435,200,000.
According to a 2020 Experian report, an average Gen-Z consumer has about $10,942 worth of personal debt, excluding mortgages. Millennials, on the other hand, have an average of $27,251 in non-mortgage debt, which is likely spread over credit cards, vehicle loans, personal loans, and student loans. A 2019 Northwestern Mutual study mentioned that 34% of people’s monthly income goes toward debt repayment on average. Even though parents and children have opposing views on who should pay for college, 53% of parents think investing in their children’s education is more important than preparing for their retirement. This is why, whether you desire a clean slate debt-free after college or you want to lead your child down the path to financial independence, it is vital to critically assess the best stocks to buy for your child.
One of the best stocks to buy and introduce to your child is Happy Meal creator McDonald’s Corporation (NYSE: MCD). If your kids can’t get enough of McDonald’s Corporation (NYSE: MCD) meals, consider making them Golden Arches’ shareholders. McDonald’s stock has offered investors returns exceeding 18% in the past twelve months. The company has a market cap of $174 billion. The company’s revenue in the first quarter of 2021 increased 9% to $5.13 billion, up from $4.7 billion in the same period in 2020. Not to mention that the world’s largest fast-food chain is also a dividend aristocrat. The company currently pays an annual dividend of $5.16 per share with a dividend yield of 2.2%. For the last 44 years, the fast-food company has grown its annual dividend, with a payout ratio of 73.33%.
Another stock to buy for your child’s portfolio is The Walt Disney Company (NYSE: DIS). Getting The Walt Disney Company (NYSE: DIS) shares for your children could turn them into permanent buy-and-hold investors. The stock has returned over 42% to investors over the past twelve months. The company has a market cap of $322 billion and second-quarter revenues came in at $15.6 billion. The company posted earnings for the second fiscal quarter, with earnings per share of $0.79, which was $0.53 higher than market expectations. The entertainment giant owns and operates amusement parks, film studios, television stations, and streaming services.
Facebook, Inc. (NASDAQ: FB)
If you are choosing the best stocks to buy for your child, missing out on growth tech stocks like Facebook, Inc. (NASDAQ: FB) would be a sin. As of March 2021, Facebook, Inc. recorded a 10% year-over-year increase on monthly active users totaling 2.85 billion. The company has a market cap of $937 billion. The company’s revenue in the first quarter of 2021 increased 48% to $26.2 billion, up from $18 billion in the same period in 2020. On top of maintaining his social media empire, Facebook, Inc. (NASDAQ: FB) founder and CEO Mark Zuckerberg is driving the next generation of technologies through his AI and augmented and virtual reality (AR/VR) investments. The company is also working on a platform and tools to assist the creator economy, including monetization opportunities for content creators. Shares of FB jumped 43% over the past twelve months.
People buying stocks for your child should strategize by consulting finance consultants and assessing risk tolerance, in addition to paying attention to the solid business principles and growth opportunities that these firms have to offer. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th, 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
We chose the stocks mentioned in this article based on two factors: expected share price gains and dividends. Some stocks in this article have excellent dividends with no signs of cuts or suspensions in the years to come. These dividend-paying companies also have solid business models and long-term growth prospects. We also mentioned some growth stocks that have an explosive growth potential because of their products.
With this context in mind, here is our list of the 10 best stocks to buy for your child.
Photo by Marcos Paulo Prado on Unsplash
Best Stocks to Buy for Your Child
10. Electronic Arts Inc. (NASDAQ: EA)
Number of Hedge Fund Holders: 44
We start our list of the 10 best stocks to buy your child with video game publisher Electronic Arts Inc. (NASDAQ: EA). The California-based video game console publisher was founded in 1982. The company is recognized for sports games such as “FIFA 21” and “Madden NFL 21”. After closing its $1.2 billion acquisition of Codemasters Group Holdings PLC in February, the company just completed its $2.4 billion acquisition of Glu Mobile Inc.
Electronic Arts Inc. (NASDAQ: EA) has a market cap of $42 billion. EA stock has returned 22% to investors in the last twelve months. In 2020, the company’s total net revenues increased to $5.6 billion, up from $5.5 billion in 2019. The company’s operating cash totaled $1.9 billion, up from $1.8 billion the previous year and $1.5 billion in fiscal 2019. Electronic Arts Inc. (NASDAQ: EA) expects net bookings to increase to $7.3 billion this year, up from $6.2 billion last year. Electronic Arts Inc. currently pays an annual dividend of $0.68 per share with a dividend yield of 0.47%. On May 14, BMO Capital maintained a Market Perform rating on Electronic Arts Inc., with a price target of $150 per share. On June 4, EA shares closed at $145.21.
Out of the hedge funds being tracked by Insider Monkey, New York-based hedge fund Renaissance Technologies is a leading shareholder in Electronic Arts Inc. (NASDAQ: EA) with 1.7 million shares worth more than $233 million.
Here is what Artisan Partners has to say about Electronic Arts Inc. in its Q1 2021 investor letter:
“Video game publisher Electronic Arts (EA) has recently experienced muted performance relative to peers. The company is expanding its moat as COVID-19 pulled forward gamer engagement in 2020 and early 2021. While we expect current growth rates will slow, the long-term value of the company’s user community has increased. EA’s net cash balance sheet and industry leadership fit well with our philosophy and process, and while the recently acquired Codemasters and GLUU Mobile will draw down cash, the balance sheet remains strong and the deals further EA’s mobile growth strategy. We believe our stake in EA represents how we can think opportunistically to build an eclectic, idiosyncratic portfolio to deliver value over the long term.”
9. DocuSign, Inc. (NASDAQ: DOCU)
Number of Hedge Fund Holders: 60
DocuSign, Inc. (NASDAQ: DOCU) ranks 9th on the list of 10 best stocks to buy for your child. The San Francisco-based software company offers an e-signature system that allows companies to draft, sign, act on, and manage contracts online. As of April 30, 2021, the company had 673 clients with an average annual contract value of more than $300,000. DocuSign, Inc.’s AI-powered products and solutions help clients like salesforce.com, inc. (NYSE: CRM) and Sunrun Inc. (NASDAQ: RUN) in efficiently handling and signing contracts and documents.
DocuSign, Inc. (NASDAQ: DOCU) has a market cap of $45 billion. DOCU stock has offered more than 59% returns to investors in the past twelve months. The company’s first-quarter revenue increased 58% to $469 million, up from $297 million in the previous year. DocuSign expects revenue of $482 million for the current quarter, which ends in July, at the midpoint of its forecast. On June 4, Citigroup maintained a Buy rating on DocuSign, Inc., with a price target of $288 per share. On June 4, DOCU shares closed at $233.24.
There were 60 hedge funds that reported owning stakes in DocuSign, Inc. (NASDAQ: DOCU) at the end of the first quarter, down from 67 funds a quarter earlier. The total value of these stakes at the end of Q1 is $3.23 billion.
Number of Hedge Fund Holders: 62
Tesla, Inc. (NASDAQ: (TSLA)) ranks 8th on the list of 10 best stocks to buy for your child. The California-based automaker creates fully electric vehicles and sells renewable energy products such as solar panels and energy storage systems. In the first quarter of 2021, Tesla, Inc. delivered nearly 185,000 vehicles. Despite a sharp drop in vehicle orders in China in May, there is no one stopping Tesla, Inc. from expanding its electric vehicle products in India. By July-August, the company plans to test its Model 3 cars in the country, with the product ready for sale by the end of the year based on media reports.
Tesla, Inc. (NASDAQ: (TSLA)) has a market cap of $577 billion. (TSLA) stock has offered more than 215% returns to investors in the past twelve months. First-quarter revenue came in at $10.4 billion, a 74% increase year-over-year. On May 24, Wells Fargo initiated coverage on Tesla, Inc. with an Equal-weight rating, and a price target of $590 per share.
There were 62 hedge funds that reported owning stakes in Tesla, Inc. (NASDAQ: (TSLA)) at the end of the first quarter, down from 68 funds a quarter earlier. The total value of these stakes at the end of Q1 is $10 billion.
Here is what Baron Partners Fund has to say about Tesla, Inc. in its Q1 2021 investor letter:
“Tesla, Inc. designs, manufactures, and sells fully electric vehicles, solar products, energy storage solutions, and battery cells. The stock fell during the quarter as a result of general market dynamics and a potential production slowdown due to parts shortages. A refreshed S/X and China Model Y ramp could also have a negative impact on margins in early 2021. We anticipate strong growth and improved margins driven by new production capacity, manufacturing efficiencies, localization of its manufacturing and supply chain, and maturation of Tesla’s full self-driving technology.”
7. AT&T Inc. (NYSE: T)
Number of Hedge Fund Holders: 63
AT&T Inc. (NYSE: T) ranks 7th on the list of 10 best stock to buy for your child. The Dallas-based telecom giant offers internet, technology, and media services worldwide. The company was founded in 1983 and was formerly known as SBC Communications Inc. AT&T Inc. owns and operates WarnerMedia which runs video on demand platform HBO Max. In Latin America, AT&T Inc. (NYSE: T) also offers video entertainment under the SKY and DIRECTV brands. The telecom company is a dividend aristocrat, having raised its dividend for at least 25 years in a row, and is currently yielding 7.11%. The company pays an annualized dividend of $2.08 per share.
AT&T Inc. (NYSE: T) has a market cap of $209 billion. First-quarter revenue came in at $43.9 billion. AT&T Inc. (NYSE: T) added 595,000 wireless phone subscribers and nearly 64 million HBO Max subscribers globally, both of which contributed to an increase in revenue for the quarter. On May 24, Morgan Stanley maintained an Equal-weight rating on AT&T Inc., with a price target of $32 per share. On June 4, T shares closed at $29.27.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment management firm D E Shaw is a leading shareholder in AT&T Inc. (NYSE: T) with 12.8 million shares worth more than $390 million.
6. McDonald’s Corporation (NYSE: MCD)
Number of Hedge Fund Holders: 67
Ranking 6th on the list of 10 best stocks to buy for your child is McDonald’s Corporation (NYSE: MCD). The Chicago-based fast-food chain was founded in 1940 and today has approximately 40,000 locations in over 119 countries. Despite the pandemic-led recession, McDonald’s Corporation opened more than 500 additional locations in 2020.
In 2021, McDonald’s Corporation (NYSE: MCD) intends to launch over 1,300 restaurants around the world. McDonald’s Corporation is also a dividend aristocrat. The company currently pays an annual dividend of $5.16 per share with a dividend yield of 2.2%.
McDonald’s Corporation (NYSE: MCD) has a market cap of $174 billion. McDonald’s stock has offered investors returns exceeding 18% in the past twelve months. The company’s revenue in the first quarter of 2021 increased 9% to $5.13 billion, up from $4.7 billion in the same period in 2020. On June 1, Barclays maintained an Overweight rating on McDonald’s Corporation, with a price target of $283 per share. The stock currently trades at $233.38 per share.
Out of the hedge funds being tracked by Insider Monkey, Boston-based investment management firm Arrowstreet Capital is a leading shareholder in McDonald’s Corporation (NYSE: MCD) with 2.56 million shares worth more than $574 million.
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Disclosure: None. 10 Best Stocks to Buy for Your Child is originally published on Insider Monkey.