If you are new to stock trading, it is important that you have a good understanding of the different classes of stocks. Such knowledge would allow you to make better investment decisions going forward. In this article, we list 6 different types of stocks and what they are about.
Growth stocks are those companies expected to grow sales and earnings at a faster rate than the market average. They often look expensive, trading at a high P/E ratio, but such valuations could actually be cheap if the company continues to grow rapidly which will drive the share price up. Growth stocks typically do not pay dividends.
Examples of growth stocks are; Facebook, Twitter, Zoom, and Snapchat
Blue-chip stocks are huge companies with excellent reputations, often including some of the biggest household names. Investors turn to blue-chip stocks because they have dependable financials and often pay dividends.
There’s this perception among investors that blue-chips can survive market challenges of many kinds; while this may be largely correct, there is no guarantee.
Examples of Blue-chip stocks are; 3M, Coke, P&G, and Johnson&Johnson
Cyclical stocks are affected by macroeconomic changes with returns that follow the cycles of an economy. Cyclical stocks are generally the opposite of defensive stocks. Cyclical stocks include discretionary companies while defensive stocks include staples.
Cyclical stocks usually have higher volatility and are expected to produce higher returns during periods of economic strength.
Examples of Cyclical stocks are; Chevron, CAT, Harley Davidson, and Micron
Common characteristics of value stocks include high dividend yield, low P/B ratio, and/or a low P/E ratio. A value stock typically has a bargain-price as investors see the company as unfavorable in the marketplace.
A value stock typically has an equity price lower than the stock prices of companies in the same industry.
Examples of Value stocks are; Cisco, Walmart, JP Morgan, and Wells Fargo.
A Penny stock refers to a small company’s stock that typically trades for less than $5 per share. Although some penny stocks trade on large exchanges such as the NYSE, most penny stocks are traded over the counter through the OTC Bulletin Board (OTCBB).
While there can be sizable gains in trading penny stocks, there are also equal risks of losing a significant amount of an investment in a short time-frame.
Examples of Penny stocks are; AK Steel, GORO, and Arcadia Biosciences