It takes a lot of hard work to pick individual stocks, and if you are a beginner with little money, this task can be even more daunting.
However, several methods are available to help beginners bypass the challenging task of picking the best stocks for beginners with little money. This guide not only details the best UK stocks for beginners but also guides beginners on how to pick the best stocks to invest in.
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The best UK stocks for beginners with little money – A quick look
With thousands of stocks to choose from, it is important for beginners to start with stocks that they understand, offer growth potential, and align with their financial goals. Following are the best UK stocks for beginners with little money:
- Diageo: One of the largest alcohol companies in the world with over 200 brands and sales in nearly 180 countries.
- Marks & Spencer: Britain’s fastest-growing supermarket with over 1,000 stores in the UK and around 430 other locations worldwide.
- Unilever: A fast-moving consumer goods company with around 400 brands, including Lifebuoy, Dove, Axe, and Sunsilk.
- Tesco: UK’s most popular grocer with a consistent share of over 27 percent of the market.5.
- British American Tobacco: Second largest tobacco company in the world, with the corporate purpose of creating a better tomorrow by building a smokeless world.
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The best UK stocks for beginners with little money – A closer look
Now that you know what the best UK stocks for beginners with little money are, let’s understand what makes them apt for beginners:
1. Diageo (DGE) – A steal at its current price
Overview
Diageo (LSE:DGE) is one of the largest alcohol companies in the world and operates in 132 countries worldwide. The company owns some of the most popular brands in the segment, including Johnnie Walker, Guinness, and Smirnoff.
Why Diageo is one of the best UK stocks for beginners with little money
Diageo’s stock is down over 11% this year and 18% in five years, but we still believe it is one of the best shares for beginners. A primary reason for its downfall is the profit warning issued last year following the drop in Latin American & Caribbean sales, but things seem to be slowly improving.
Post-COVID financial challenges pushed many consumers away from the higher-end brands, including Diageo, towards cheaper alternatives. Though this trend remains a threat, the company seems to be slowly recovering from this.
In its 2023 earnings report, Diageo reported an increase in cash flow and dividends but lower operating profit. With premium brands under its umbrella, the company promises stable growth in the long term, especially when there are further rate cuts, which in turn boost spending.
Thus, many analysts believe Diageo’s stock is a steal at the current price.
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2. Marks & Spencer (MKS) – Enjoying investor confidence despite dip in consumer confidence
Overview
Marks & Spencer Group (LSE:MKS) operates various retail stores that provide deli and dairy products, an in-store bakery, general groceries, womenswear, menswear, kidswear, home products, and financial services.
Why Marks & Spencer is one of the best UK stocks for beginners with little money
Marks & Spencer stock is up almost 40% this year and about 100% in five years, far outperforming the FTSE 100.
Being a consumer company, Marks & Spencer has faced challenges post-COVID, including inflation and low consumer confidence. Still, it has been successful in making changes to push its growth forward, including boosting its in-store and online presence.
The success of Marks & Spencer’s turnaround strategies is evident from the investor confidence it enjoys and the fact that it is now Britain’s fastest-growing supermarket. According to Kantar figures, the company is beating the competition on both value and volume.
Additionally, data reveals that a third of UK households are now buying groceries at Marks & Spencer following the company’s commitment to improve the quality of its products. The growth is expected to continue as the company continues to reinvent its shelf products to make them better and different from others.
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3. Unilever (ULVR) – A staple brand with more growth to come
Overview
Unilever (LSE:ULVR) is a fast-moving consumer goods company that operates through several segments, including Personal Care, Home Care, Beauty & Wellbeing, Nutrition, and Ice Cream.
Why Unilever is one of the best UK stocks for beginners with little money
Unilever stock is up over 24% this year, suggesting continued investor confidence in this multi-brand company. This year’s third quarter was another solid quarter for the company as the maker of Dove soap reported a sales growth of 4.5%.
Unilever has transcended the status of most companies, with its products having become a necessity for many consumers. The company, which owns several brands, including Knorr soups and sauces, Hellmann’s mayonnaise, Axe, Dove, and more, showed strong top-line performance even during the COVID-19 pandemic.
Unilever’s strategy of increased brand investment and scaling fewer, bigger innovations is paying off well. Though the company is struggling in some markets, such as Indonesia and China, it is making strides in other key emerging markets.
In addition to strengthening its brand, the company is also focusing on controlling its cost, and this has helped it to boost its gross margin lately. All such strategies put the company on the right growth track for the foreseeable future.
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4. Tesco (TSCO) – UK grocer set to outperform growth expectations
Overview
Tesco (LSE:TSCO) is a grocery retailer that operates in the UK, Slovakia, Hungary, Republic of Ireland, and the Czech Republic. The company offers its products offline and online, and also deals in food and drink wholesaling activities.
Why Tesco is one of the best UK stocks for beginners with little money
Tesco is an industry leader and a go-to store for 51% of online grocery orders in the UK. Its shares are up almost 20% this year, despite rising interest rates pushing consumers towards low-cost chains like Aldi and Lidl.
Tesco has shown excellent stability and resilience despite rising competition and economic uncertainty, making it an excellent stock for beginners to consider. According to Kantar data, its market share is now above 28% for the first time since 2015, well ahead of the UK’s second most popular grocer, Sainsbury’s.
Tesco is also undertaking cost cutting and productivity improvements measures, and this has helped the company grow its first-half sales by 4% and operating profit by 10%. Another thing that makes the grocer popular among investors is its recent hike in interim dividend and its 1bn share buyback plan, which runs until April.
Tesco has witnessed a magnificent turnaround since 2014. The outlook also looks positive for the retailer, with a better-than-expected growth rate in the UK and interest rates estimated to fall significantly next year.
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5. British American Tobacco (BATS) – High-priced stock with potential growth opportunity
Overview
British American Tobacco (LSE:BATS) offers tobacco and nicotine products to consumers worldwide through several popular brands, including Vuse, glo, Velo, Grizzly, Kodiak, Dunhill, Kent, Natural American Spirit and more.
Why British American Tobacco is one of the best UK stocks for beginners with little money
British American Tobacco is one of the largest tobacco companies in the world. Though its share price is on the higher side (above £2,600) for beginners with little money, it is still on our list of best stocks for beginners because of its potential growth.
With declining global cigarette consumption continuing to be a setback for the world’s second-largest tobacco company, the company is making efforts to offset this decline by investing in next-gen nicotine-related products that pose lower risk.
BATS’ effort seems to be paying off, as its stock is up almost 20% this year. The company also beat first-half profit forecasts but is struggling in key markets as buyers are shifting from expensive cigarette brands to cheaper alternatives
Another thing that makes BATS popular among investors is its attractive dividend yield, which is far better than the average yield of companies in the S&P 500 index and of average consumer-staples stocks.
Though the company is raising the prices of its products to offset the decline in volume, we believe its high dividend yield is what makes investors stick to the stock. If the company is able to sustain the yield and revenue, it could become the top choice of investors for many years to come.
Your capital is at risk.
Stocks and shares refer to units of ownership in publicly listed companies. The owners of stocks and shares are called shareholders, who get voting rights and dividends. Though the term shares and stocks are used interchangeably, there is a technical difference between them.
The term stock usually refers to the portions of ownership in one or more companies. For example, Mr. A owns stock in Apple and Amazon.
Shares, on the other hand, refer to a person’s ownership percentage in a particular company. For example, Mr. A owns 40 Apple shares.
How to invest in UK stocks for beginners
Knowing the best stocks for beginners with little money isn’t enough to start investing. Investors need to consider a few more things to help them invest efficiently in UK stocks.
1. Set achievable financial goals: Having a financial goal is very important. It helps you to focus your investment efforts to achieve those objectives.
2.Select a broker: It is always recommended that you invest in a stock market through a registered broker or a robo-advisor. When selecting a broker or a robo-advisor, selecting a reputed service provider with 24/7 customer support is important.
3. Pick a type of investment account: Whether you investing through a broker or robo-advisor, you need an investment account. There are several types of investment accounts to choose from, such as a Roth IRA, which offers tax benefits.
4. Set a budget: A new investor always faces this tough question – how much money should I invest in stocks? Thus, you must set a budget beforehand and stick to it.5. Test with fake money: Before you put your hard-earned money at risk, it is recommended that you test your investment strategy with fake money. Several brokers allow users to test their trading skills with virtual money.
Types of stocks to look out for as a beginner
If you are just starting in the stock market, there are a few categories that are well-suited for beginners. Though not all stocks in these areas are good buys, they can serve as a great start in your search for returns.
Dividend stocks
Dividend stocks are shares of companies that offer regular dividends to their shareholders. These stocks provide steady income and potential capital appreciation and are thus appealing to beginners.
Penny stocks
Penny stocks are low-priced stocks with lower market capitalizations. Beginners with a small amount of money can buy a good quantity of penny stocks. Moreover, such stocks can offer attractive returns even with little appreciation in their value.
Meme stocks
Meme stocks are the shares that have gained widespread popularity among retail investors because of social media hype. The performance of such stocks is primarily influenced by social media and is not backed by their fundamentals. Such stocks usually gain popularity among new investors, resulting in short-term gain in their price.
Blue chip stocks
Blue-chip stocks are the shares of well-established companies that have stable earnings. Such stocks are usually safe bets as these companies are typically leaders in their respective industries. Moreover, such stocks are reliable and are less volatile than the shares of smaller, less established companies.
Growth stocks
Growth stocks are the shares of companies that are expected to grow at an above-average rate compared to other companies in the same category. Though growth stocks can be more volatile than blue-chip stocks, they offer significant capital appreciation opportunity.
An ISA or Individual Savings Account is a tax-free way to grow your savings, as the interest you earn from this account is not taxable. It is a good way for beginners to save some money while growing their investments. Some of the best stocks and shares ISA for beginners are:
AJ Bell
AJ Bell stocks and shares ISA allow investors to invest with as little as £25 a month, or invest a lump sum. Investors are free to choose their own investment, or select from AJ Bell’s ready-made portfolios. They also have a mobile app to help investors track their investments.
Vanguard
Vanguard stocks and shares ISA is easy to open and the fees are low as well. Investors can either select their own funds or funds to invest in or choose from Vanguard’s Managed ISA. Additionally, investors get 24/7 access to their funds and help from a UK-based customer service team and more importantly, there are no hidden charges.
Hargreaves Lansdown
Hargreaves Lansdown ISA allows investors to check their investments with its app or website easily. Here also investors can pick their investment or choose from the platform’s ready-made portfolios. Investors can select from over 3,000 funds and can invest as little as £25 a month (or £100 lump sum).
Nutmeg
Nutmeg offers low-cost options compared to other managed investment funds. It is a good option for passive investing and for investors with little knowledge about the workings of the stock market. Nutmeg’s investment portfolios are well-researched and are looked after by prominent investing experts
Methodology – How we chose the best stocks for beginners with little money
When selecting the best stocks for beginners, we scanned the portfolios of many successful beginner investors to get an idea of the type of stocks they considered. Additionally, we considered the following factors when picking the best stocks for beginners with little money:
- Dividend yield: Stocks that offer regular dividends scored high on our list. Dividend-heavy stocks ensure a regular and stable income for investors.
- Growth potential: A company exhibiting above-average growth potential is more likely to earn higher returns for investors. Moreover, a stock with growth potential is usually less risky, and thus, is good for beginners.
- Volatility: Stocks with higher volatility have the ability to offer big returns, but are riskier as well. Thus, we gave preference to stocks with lower volatility as lower price fluctuations help beginners to avoid emotional decision-making.
- Share price: Beginners usually have less money, and thus, may not afford to buy too many shares of companies whose share price is on a higher side. So, we gave more preference to stocks with lower market price unless they exhibit remarkable growth potential.
- Brand recognition: We considered companies that are well established and well-known. It is very important for beginners to invest in companies that they can easily understand and follow.
Conclusion
While they may not always be reliable, the stocks discussed above are a great place to start your investing journey and build your portfolio.
However, it is important to remember that good investing is not always about buying the best stocks. Sometimes, good investing also means avoiding stocks that can compromise your entire portfolio.
Additionally, finding the best stocks for beginners is about figuring out the best investment approach for you, what platform works best for you, and how much money you’re willing to invest.
