Investing in the stock market can be daunting. Often, investors don’t know where to start.
I was in a similar position when I first started. Nowadays, there’s an abundance of noise surrounding the markets, with many promoting get-rich-quick schemes through methods such as day trading.
I tend to ignore that. I’ve settled on buying high-quality businesses that I think have the potential to deliver long-term growth. To keep it as simple as possible, I also target companies where I can easily understand the business models and how they make money. That’s a key strategy used by billionaire investor Warren Buffett.
If I were starting out again, here are two stocks I’d consider buying, if I had the cash.
GSK
The first is GSK (LSE: GSK). It’s a pharmaceutical giant that delivers over 1.5m doses of its vaccines every day. The stock’s got off to a hot start in 2024, rising 20%.
What I most like about GSK is the defensive nature of the stock. By that, I mean it offers investors, to a certain extent, protection against tough economic conditions.
That’s because there’ll be consistent demand for its products. Even in periods of economic downturn, like we are in now, people still need to buy medicines and treatments. We saw this in Q1 when its sales jumped 10% compared to last year.
I further like GSK shares because they offer a dividend yield. Paying a dividend is a form of profit-sharing companies use to reward shareholders. Right now, the stock yields 3.3%. That’s below the FTSE 100 average (3.9%). However, it’s predicted to rise to 4%.
As is the case with all stocks, investing in GSK comes with risks. Pharmaceutical companies have to spend millions to bring drugs or treatments to the market and things such as R&D can be costly.
But trading on a price-to-earnings (P/E) ratio of 16.2, I think GSK shares look fairly priced today.
Burberry
Another stock I’d consider is Burberry (LSE: BRBY). The British luxury fashion house needs little introduction. Unlike GSK, Burberry’s struggled so far in 2024. Year to date, its share price has fallen 18%.
But now trading on a P/E ratio of 10, I think the stock looks like decent value for money. That’s way below its long-term historical average of closer to 20.
Unlike GSK, Burberry’s cyclical. This means its performance can be tied closely to the economy. As such, right now the biggest threat to Burberry is a slowdown in spending.
The business has issued two profit warnings in recent times as racing inflation and high interest rates have curbed spending habits. In the months to come, this will likely continue to be an issue.
But as rates are cut, we should begin to see spending pick up again. What’s more, the business also stands in good stead to capitalise on growing wealth in Asia.
Burberry shares boast an impressive 5.5% yield. That means I can collect some passive income while I wait for its share price to recover. I suspect this may take time but, at its current price, I see long-term value.
