Building an investment portfolio can be compared to the construction of a building. A building comes up brick by brick after a solid foundation is laid, ensuring that the structure can stand up to the elements and adverse weather conditions. Similarly, the construction of a portfolio should also be done gradually. A strong foundation is necessary to ensure the portfolio can withstand economic turmoil and tough challenges such as the stress brought about by the COVID-19 pandemic.
In selecting suitable companies to form the portfolio's base, I prefer to look out for a combination of growth and dividends. Ideally, the selection should also contain companies with a strong, recognizable brand name and clear catalysts for the business to continue its growth trajectory. You should also account for any new trends that have emerged because of COVID-19, bearing in mind the pandemic may permanently alter certain habits and practices.
Here are three stocks that have the attributes mentioned above that you may consider purchasing as part of your starter investment portfolio.
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Mastercard
Mastercard (MA -0.74%) is a well-known financial services company with around 2.6 billion cards in circulation around the globe. The pandemic has temporarily depressed spending as many countries are grappling with a health-cum-economic crisis, resulting in a decline in both the number of transactions and the value of each transaction. Mastercard's second-quarter earnings showed a 17% year-over-year decline in net revenue, while net income fell sharply by 31% year over year.
However, there are signs that a gradual recovery is taking root. For the week ended Aug. 28, the total volume of transactions improved 3% year over year, even though cross-border volumes remained depressed due to continued border closures. The recovery in spending shows pent-up demand as consumers are unable to spend on vacations and cruises. At the same time, the coronavirus has also accelerated the trend toward digitalization, boosting overall e-commerce volumes and providing a catalyst that will boost Mastercard's long-term growth.
The company is also partnering with other firms to reach out to a wider group of consumers and to boost its capabilities. Early this month, Mastercard launched a free online tool in the U.S. to assist around 50 million small businesses to go digital. And last month, the company partnered with Stride, a portal benefits platform for independent workers, to offer its cardholders access to affordable coverage plans for health and dental benefits. Investors should also note that Mastercard has been consistently increasing its dividends, from $0.67 back in 2015 to $1.39 last year.
Mastercard's stock price has made a sharp recovery from the low reached in late March, rebounding more than 50% to register a year-to-date gain. This rebound can be attributed to the gradual increase in spending witnessed since April as lockdowns began to ease, while investors are also feeling optimistic about the numerous collaborations that the company has inked over the months to boost business prospects. This optimism is warranted as Mastercard has shown that it is able to continue growing despite the many challenges it has faced in the last 12 years, such as the global financial crisis and European credit crisis.
Peloton
Peloton (PTON -8.57%) is a seller of exercise equipment such as treadmills and exercise bikes, and also hosts one of the largest interactive fitness platforms with around 2.6 million members. The pandemic has significantly boosted the company's subscription revenue and led to a surge in its member base. For the fiscal year ended June 30, subscription revenue more than doubled to $363.7 million, while the sale of fitness products also doubled to nearly $1.5 billion.
The company also posted its first quarterly net income at $89.1 million in the fourth quarter, and fitness subscriptions almost doubled to 1.1 million, assuring Peloton of a steady and consistent stream of subscription revenue. Total workouts more than quadrupled year over year in the fourth quarter to 76.8 million, showcasing how the pandemic has pushed significantly more people to sign on with Peloton for home workouts. As more people discover the convenience of exercising from home, it looks as though Peloton's subscriptions should continue to climb over time.
Peloton's stock price has soared along with the strong uptake of its services, rising 400% from around $30 at the start of the year to $120. The share price initially did not move much up till May, but as the company's services became increasingly popular due to the numerous lockdowns, subscription rates soared and led to a significant increase in recurring income for the business. Not surprisingly, the market is rewarding this robust performance, and there may be more to come if Peloton can keep up with its growth momentum.
Beyond Meat
When it comes to health trends, a company that immediately comes to mind is Beyond Meat (BYND 6.53%). The plant-based meat substitute business, founded in 2009, has expanded aggressively over the years, and its products are now available in more than 85 countries worldwide. Although the company managed to nearly double its revenue in the first half of 2020, it has yet to turn a consistent profit. However, with global health trends emphasizing healthier alternatives, along with higher awareness of the potential harm that meat-based products can cause, the company looks poised to ride a multiyear wave of growth.
Recent business development initiatives by the company provide confidence in its ability to expand its reach and distribution channels, thereby assuring investors of continued growth. In early September, Beyond Meat inked an agreement to design and develop a modern facility for the manufacture of plant-based meat products in China, with full-scale production commencing in early 2021. In late September, the company more than doubled the retail distribution of its sausage patties to various retail outlets across the U.S. At the same time, Beyond Meat tripled the availability of its Beyond Burger from 800 to more than 2,400 stores of Walmart, a major retailer in the U.S.
Beyond Meat's stock stumbled in the early part of this year as lockdowns disrupted global supply chains, but since lockdowns began to ease, the share price has more than doubled since the beginning of the year to hit a 52-week high of $195 in early October. With these new health trends here to stay, along with the company's expanded distribution around the US and into China, investors should feel sanguine on its prospects. Beyond Meat has displayed resilience and demonstrated its ability to continue to grow its distribution channels under challenging conditions.
