Types of Stocks
Whether investing in preferred or common stock, these are a few categories of stocks based on their characteristics.
- Growth stocks - stocks which have faster earnings growth than the market average. Such stocks are risky, because they are frequently startups in the early stages of the business cycle, such as technology companies. However, they provide the potential for high earnings/capital growth.
- Income stocks - known for consistently paying investors dividends and generally are stable companies such as utility providers.
- Value stocks - characterized by having low valuation measures such as price-to-earnings (PE) ratio, these stocks can be growth or income stocks too. Their low PE ratio reflects that they are currently cheap, compared to stocks with a higher PE, and investors buy such stocks in hope that the market will correct and the price will go up.
- Blue chip stocks - shares from large, established companies with a solid track record of growth, often paying dividends too (Amazon).