Investors have a habit of overcomplicating the process of building a portfolio. Sure, there are endless potential concerns about how any business might perform over the next quarter and what you need to do in the short term to account for that. But it is very likely that you will generate good returns just by owning a basket of excellent trades and simply holding your own through volatility like the current bear market.
With that simplicity in mind, let’s take a look at two easy-to-understand industry-leading stocks that might deserve a spot in your portfolio. If you have $3,000 on hand that you don’t need for bills, to build an emergency fund, or to pay down debt, you may want to put it to work by buying McCormick (MKC -1.70%) Y Microsoft (MSFT -0.97%) stocks. Here are a few reasons why these two simple actions can boost your portfolio in the long run.
1. McCormick is attractive
McCormick specializes in selling products that add flavor to foods. His spices and sauces portfolio is popular with many restaurant and food service professionals, but his core business involves marketing to home cooks, allowing him to take advantage of continued global growth in that industry. McCormick’s huge sales footprint offers market share gains over smaller competitors, and its ownership of premium brands like French’s condiments and Frank’s hot sauces generate high profit margins and cash flow.
The stock price stumbled in 2022, along with most of the market. McCormick as a business is not growing as fast as management had anticipated earlier in the year. Consumers are not spending as freely on their purchases due to inflation, and rising costs are also affecting profitability.
But McCormick is still gaining share in an industry that has exploded since the start of the pandemic and is likely to continue to grow in the years and decades to come. His financial strength (the company is Dividend Aristocrat) will give him the flexibility to invest in areas like marketing during any downturn so that he emerges even stronger in the next growth cycle. As investors wait for the stock to recover, they can collect a quarterly dividend with a yield of just under 2%.
2. Microsoft has the cash
Microsoft has dominant market positions in attractive niches including productivity software, video game entertainment, and business cloud services. Steady expansion in these areas has fueled phenomenal growth for the software giant in recent years, and the current slowdown doesn’t mean those boom times are gone forever.
Yes, consumers aren’t spending as aggressively on gaming and home productivity products today. But it still has one of the most profitable businesses out there. Microsoft generated $20.5 billion in operating income this past quarter, up 14% after accounting for exchange rate changes.
That success gave the software giant room to increase its quarterly dividend by 10% in mid-September, even as it spends tens of billions of dollars investing in growth for the next decade. Your purchase proposal Activision Blizzard is a prime example of that expansion strategy at work.
Wall Street is concerned about the coming quarters, which could show a slowdown in sales and earnings growth. But savvy investors can look past that volatility to a future that will be increasingly software-driven in big industries like entertainment and hybrid and remote work. As that future rolls around, you’ll probably be glad you made an investment, even a relatively small one, in Microsoft stock.
Demitri Kalogeropoulos has positions at Activision Blizzard. The Motley Fool has positions and recommends Activision Blizzard and Microsoft. The Motley Fool recommends McCormick. The Motley Fool has a disclosure policy.