Contrary to popular belief, you don't need a large amount of money to start investing. You can start with as little as $500, and by doing so you can also learn a lot while finding some nice returns in the process. If you fall in this category, Motley Fool contributing analysts are here to explain why Netflix , Google , and Procter & Gamble are all top choices.
Continue Reading Below
Brian Nichols (Netflix): If I were investing $500 today, and in just one stock, I'd want it to be a company that's ahead of a major market trend. I would want to see cutting edge technology, consumer demand, and fast revenue growth. For me the choice is obvious, Netflix. For one, Netflix has 37 million U.S. subscribers. That's roughly one-third of all American households. The company also has nearly 16 million international subscribers with Digital TV Research estimating that it's on pace to add another three million in the fourth quarter alone. While Netflix's large user base certainly fuels my liking, along with the fact that streaming video on mobile and PC devices is causing growth-related headaches for broadcast TV, what I really like is Netflix's knowledge. To elaborate, so many investors are worried about Netflix's content obligation costs, which rose $1.2 billion to $8.9 billion in the third quarter.
However, at the center of Netflix lies a very unique technology, one that knows what its subscribers will want to watch based on prior preferences and viewing history. That said, Netflix has collected data, including preferences on well over 50 million subscribers. Therefore, it's no surprise that Netflix has purchased the rights to content its subscribers want to see, and has hit home runs with original content like Orange Is the New Black or House of Cards.
Netflix had 31 Primetime Emmys this last year, and according to a recent survey from Centris Marketing Science, 72% of U.S. subscribers claim to watch at least some Netflix original programming. This is up from 57% in the first quarter. Therefore, Netflix's big content budgets shouldn't be seen as a liability, but rather a driving force to attract new subscribers to programming that consumers want to watch. Given Netflix's content success, combined with its subscriber growth and the fact that its shares are down 30% in the last three months, investors with $500 bucks to spend might want to grab a share of Netflix.
Joe Tenebruso(Google): One share of Google may cost slightly more than $500, but it's well worth the price. The search titan is one of the most dominant businesses that exist in the world today. So much so that legendary investor and notorious curmudgeon Charlie Munger once heaped rare praise on the company saying "Google has a huge new moat. In fact, I've probably never seen such a wide moat."
Google's competitive moat has grown even wider since Munger made that statement in 2009, as Google's impressive array of services collect ever-increasing amounts of data on its users. This vast treasure trove of personal data has led to privacy concerns, but it's also given Google the ability to better target its ads, thereby offering more relevant advertisements to users and increasing the return on investment for its marketing partners. This, in turn, helps Google generate enormous cash flows, which it can then reinvest in improving its services and acquiring new technologies. It's one of the most powerful virtuous cycles present in all the businesses I follow -- something Munger's quote attests to.
Add in a superb management team, an innovative culture, a fortress-like balance sheet, and multiple opportunities for long-term growth, and Google has all the qualities of an outstanding investment.
Continue Reading Below
Demitrios Kalogeropoulos (Procter & Gamble): Even a small initial purchase of a dividend stock can sprout into a huge position thanks to the lift that reinvested dividends provide. These reinvestments boast several advantages but I'll just mention three. First, they force automatic repurchasing of your holding in regular chunks over time. Second, your reinvestments usually aren't penalized with any transaction charges. And finally, dividend reinvestments don't require you to wait until you can buy an entire share of a stock fractional purchases are allowed.
That's why I'd spend $500 buying dividend giant Procter & Gamble today. The consumer goods king pays out a hefty 2.8% yield right now, which will help you slowly accumulate many more shares than your initial purchase allows. Sure, like most consumer-facing companies, P&G is struggling through weak sales and profit growth at the moment. But returning CEO Alan Lafley is aiming to change that trend through a massive portfolio realignment that will see the company shed dozens of its underperforming brands. The recent Duracell sale is just one example of that strategy at work.
Once that process is finished, P&G should be a leaner, more focused company with higher overall profitability. And with nearly 100 fewer brands to worry about, it will be easier for management to prioritize its investments and respond more quickly to changing consumer tastes. In the meantime, investors can wait for that strategy to bear fruit while allowing their hefty dividend payouts to compound their first purchase into a larger position over time.
The article How Id Invest $500 Today originally appeared on Fool.com.
Brian Nichols owns shares of Google (C shares) and Procter & Gamble. Demitrios Kalogeropoulos owns shares of Netflix. Joe Tenebruso has no position in any stocks mentioned.The Motley Fool recommends Google (A shares), Google (C shares), Netflix, and Procter & Gamble. The Motley Fool owns shares of Google (A shares), Google (C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.