Classification of Stocks

Several categories of stocks are available in the market that may fit your goal. The following literature provides you with the attributes of these different categories of stocks.

• Growth stocks have good prospects for growing faster than the economy or the stock market in general and involve average risk. Investors buy them because of their good record of earnings growth along with an expectation that it will continue generating capital gains over the long-term.

• Blue-chip stocks are generally industry-leading companies with top-shelf financial credentials. They tend to pay decent with steadily rising dividends, generate some growth, offer safety and reliability. These stocks can form the core holdings of your retirement portfolio, a group of stocks that you can hold onto forever while adding others to your portfolio.

• Income stocks pay out a much larger portion of their profits (often 50 per cent-80 per cent) in the form of quarterly dividends than other stocks do. These tend to be more mature and belong to slow-growth companies, and the dividends paid to investors make these shares comparatively less risky to own than the shares of growth or small-company stocks. Though share prices of income stocks are not expected to grow rapidly, the dividend acts as a kind of cushion beneath the share price. Even if the market in general falls, income stocks are usually less affected because investors will still stand to receive the dividends.

• Cyclical stocks are called ‘cyclical’ because of their tendency to rise and fall with those of the economy at large as well as prospering when the business cycle is on the upswing, suffering in the recession. Automobile manufacturers, steel, cement, airlines, and hospitality are good examples.

• Defensive stocks are theoretically insulated from the business cycle (and therefore lower in risk) because people go right on buying their products and services in bad times as well as good. Examples include utilities, food, beverages, and pharmaceuticals.

• Value stocks earn this name as they are considered underpriced according to several measures of value described/prescribed. A stock with an unusually low price in relation to the company’s earnings may be dubbed as value stock if it exhibits other signs of good health. Risk can vary greatly.

• Speculative stocks belong to the unproven young companies (tech/non-tech), exhibiting some sort of spark (such as a promise of an imminent technological breakthrough or a radical new business idea), mainly in the form of unjustified price rise on relatively large or small volumes. Buyers of speculative stocks have hopes of making huge profits. Most speculative stocks don’t do well in the long-run, so it takes big gains in a few to offset the losses in many others. The risk here, therefore, no surprise, is very high.

Classification of stocks

Several categories of stocks are available in the market that may fit your goal. Go through the following reasons stating why you should buy a stock:

• Growth stocks have good prospects for growing faster than the economy or the stock market in general and involve average risk. Investors buy them because of their good record of earnings growth along with an expectation that it will continue generating capital gains over the long-term.

• Blue-chip stocks are generally industry-leading companies with top-shelf financial credentials. They tend to pay decent with steadily rising dividends, generate some growth, offer safety and reliability. These stocks can form the core holdings of your retirement portfolio, a group of stocks that you can hold onto forever while adding others to your portfolio.

• Income stocks pay out a much larger portion of their profits (often 50 per cent-80 per cent) in the form of quarterly dividends than other stocks do. These tend to be more mature and belong to slow-growth companies, and the dividends paid to investors make these shares comparatively less risky to own than the shares of growth or small-company stocks. Though share prices of income stocks are not expected to grow rapidly, the dividend acts as a kind of cushion beneath the share price. Even if the market in general falls, income stocks are usually less affected because investors will still stand to receive the dividends.

• Cyclical stocks are called ‘cyclical’ because of their tendency to rise and fall with those of the economy at large as well as prospering when the business cycle is on the upswing, suffering in the recession. Automobile manufacturers, steel, cement, airlines, and hospitality are good examples.

• Defensive stocks are theoretically insulated from the business cycle (and therefore lower in risk) because people go right on buying their products and services in bad times as well as good. Examples include utilities, food, beverages, and pharmaceuticals.

• Value stocks earn this name as they are considered underpriced according to several measures of value described/prescribed. A stock with an unusually low price in relation to the company’s earnings may be dubbed as value stock if it exhibits other signs of good health. Risk can vary greatly.

• Speculative stocks belong to the unproven young companies (tech/non-tech), exhibiting some sort of spark (such as a promise of an imminent technological breakthrough or a radical new business idea), mainly in the form of unjustified price rise on relatively large or small volumes. Buyers of speculative stocks have hopes of making huge profits. Most speculative stocks don’t do well in the long-run, so it takes big gains in a few to offset the losses in many others. The risk here, therefore, no surprise, is very high.