Stocks

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What types of stocks are there?

There are many ways to characterize or classify stocks. Here are some of the classifications, and what they mean:

Classification by objective:

  • Income stocks/Dividend paying stocks — stocks whose primary objective is to pay stable, high dividends; growth is secondary.
  • Growth/aggressive growth stocks — stocks of companies that concentrate on growing the company; they tend to have high valuations, and to reinvest any earnings in the company rather than pay dividends.

Classification by market capitalization — the market value of a company as determined by the total value of all of its outstanding stock. Different firms use different dollar amounts, so these are general ranges:
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  • Large cap — greater than $5 or $10 billion. These are generally considered to have less risk and reward potential than smaller companies because they are mature businesses whose future growth will be slower than smaller firms.
  • Mid cap — anywhere between $1 billion and $10 billion, with mid-range risk and reward characteristics.
  • Small cap — under $1 or $2 billion. Smaller companies tend to have more risk — and more reward potential — than larger, more established companies. That's because it's easier for a smaller company to grow quickly, but also easier for it to fail to survive.

Other classifications:

  • Blue-chip — large, well established, solid leading companies in their respective industries; generally considered lower in risk than most other types of stocks.
  • Cyclical stocks — stocks of companies whose earnings tend to rise and fall along with the general economy or in regular business cycles.
  • Value stocks — stocks that are considered to be inexpensive compared to their potential, often because they are overlooked or out of favor in the marketplace.
  • International stocks — stocks of companies based outside of the U.S.
  • Penny stocks — stocks priced below $5 a share. Generally highly speculative.