Type of Stock

By: Noorulhadi

Lecturer GCMS Peshawar

• There are many different types of stocks available and in order to meet your financial goals, it's important that you understand the differences between them.

Blue Chip Stocks

• Blue chip stocks are well-established, nationally known, and generally financially sound companies. Blue chip companies have consistently demonstrated good earnings and industry leadership. Blue chips are typically less volatile than other stocks and have a record of paying dividends in both good and bad times.

Growth StocksGrowth-stock companies have earnings and

market share expansion that exceeds the industry average and the economy in general. Growth stock companies typically reinvest their profits to expand and strengthen their businesses, retaining most of their earnings to finance expansion and paying little, if any, dividends to shareholders. Investors are attracted to these stocks because they expect the stock price to go up as the company grows.

Penny Stocks

• The term penny stock generally refers to low-priced (below $5) stock, which is traded over the counter (OTC). Penny stocks are generally considered a very high-risk investment.

Value Stocks

• Value stocks are those that are considered undervalued by value investors. Value investors typically define undervalued stocks by their book/market and price/earnings ratios. Often value stocks represent companies with past financial difficulties, whose potential for growth has been underestimated, or that are part of an industry that is currently out of favor with investors.

Defensive Stocks

• These are stocks of companies that provide necessary services, such as utilities that provide electric and gas, supermarkets that provide food, etc. Because the companies representing these stocks fulfill basic human needs, these stocks tend to provide a degree of stability for investors during recessions or economic slowdowns.

Income Stocks

Income stocks typically pay high dividends in relation to their market price, making them attractive to people who buy stocks for current income. Historically, these have been public utilities, but some blue chip stocks may fall into this category as well.

Cyclical Stocks Cyclical stocks represent companies whose

earnings are closely tied to the business cycle. When business conditions are good, a cyclical company generally prospers and its common stock price generally rises. When the economy slows or falls into recession, these companies' earnings and stock prices typically fall. Airlines, automobiles, furniture manufacturers, steel and paper producers are examples of cyclical stocks.

Seasonal Stocks

The performance of these stocks fluctuates with the seasons. For example, retail companies' sales and profits often increase at Christmas and the start of the school year.

International Stocks

Many investors use domestic (U.S.-based) equities as an integral part of their investment portfolios. However, the U.S. equity markets represent only about one-third of the total world markets. To be truly diversified, you should consider international equity investments.