Types of Stocks in the Stock Market According to Characteristics

Stocks are classified according to types and classes, depending on the characteristics and earnings potential.

According to CHARACTERISTICS

Though there is no formal definition or criteria to classify a stock according to its characteristics, analysts generally describe stocks as:

a.  Blue Chip stocks – are shares of well-established and financially sound   companies that have demonstrated their ability to pay dividends in both good and bad times.  They also exhibit more modest but dependable returns and are relatively of lower risk.

b.  Income stocks – are shares of those companies with good dividend payment history due to steady profits.  Since they are stable, income stocks generally have a lower level of volatility.

c.  Growth stocks – also called “glamour stocks”, are shares of corporations whose earnings are expected to grow at an above-average rate relative to the market. A growth stock does not usually issue dividends as earnings are reinvested in capital projects.

d.   Defensive stocks – are shares that provide regular dividends and stable earnings, regardless of the overall condition of the stock market. Defensive stocks remain stable under difficult economic conditions.  Generally, these are stocks of food, oil, and utilities companies, which are characterized by steady demand amidst hard times.

e.   Cyclical stocks – are those sensitive to business conditions or cycles strongly tied with the economy’s performance.  These companies produce or offer services that are low in demand during slowdown and increase when business peaks.

f.   Speculative stocks – are those that rise quickly when economic growth is strong and falls rapidly when growth is slowing down. A speculative stock is considered very risky because of its volatility.  It increases or decreases rapidly depending on the economic conditions.

Source: PSEAcademy
Photo credit: flickrCC

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