Owning a stock gives you the opportunity to own a part of the ownership in a company. Stocks are the most common type of investment and we can divide them in 7 different categories. Different types of stocks can have similar characteristics: e.g. moving in the same direction. Some stock types are better (and less risky) investments than others, and some of them can fit into multiple categories. Based on your personality and risk tolerance, you can choose stock type which suits you best. This will help you make better investment decisions.
Blue Chip Stocks
Blue chip stocks are shares in large, established companies that are leaders in their industry. These stocks are usually expensive and their price increases slowly, but they provide the lowest risk and they often provide regular dividend payments.
Speculative stocks represent shares in startup businesses. Such companies develop new products and explore new markets and industries. These stocks come with a higher amount of risk but they also have potential to get very big returns. The problem with these companies is that many of them usually don’t succeed.
Growth stocks are shares of companies whose earnings are higher than the average growth of a market. Such companies pay low dividends because the earnings are reinvested back into the business to fund further development of the company. Some investors prefer buying growth stocks because as the company grows, the stock value increases.
Value stocks are the ones whose price is undervalued (lower relative to the fundamentals such as earnings). The company that issues the value stock has assets that are worth more than the stock price. Investors believe that the stock will become more valuable in the future and that the price will be more realistic.
Income stocks are actually blue chip stocks from well-established companies usually pay high dividends. Income stock are the least volatile types of stocks and some investors prefer them because they offer a steady and growing income. Companies which issue such stocks are usually in strong industries like finance, energy and natural resources.
Penny stocks are stocks with very low price and high risk. Their price is less than $5 per stock and sometimes even lower than $1. Startup companies usually issue such stocks to collect money for company growth. However, many of these companies do not succeed.
Cyclical stocks are highly-affected by macroeconomic situation and they follow the exonomy during both expansion and recession. Companies which issue cyclical stocks usually produce or sell products that customers buy more during the expansion and less during a recession. Such companies can be found in airline industry, retail, hotels etc.