4 Types of Stocks

1. Blue Chip – These are big companies that are stable, well established and also own a big market share in the products or services they sell. These companies don’t disappear overnight, and also blue chip stocks have a good track record. However, there can be exceptions. In India a leading FMCG company was in trouble when one of its product was under radar for containing a harmful ingredient. And the stock tumbled real bad post that event. However, it had other products in its lineup that saved the company.

2. Undervalued – These are stocks that are trading at a price below their intrinsic value. Value investors pick these stocks. The problem with these stocks is their trading volume would be low in most cases as they aren’t on many peoples’ radar and that’s also one of the reason for them to be undervalued. Many investors lose their patience and exit early in such type of stocks. So looking at beta too should be on the checklist while investing in such stocks. Also if the stock is a small cap and isn’t paying dividend, then you are better off of fixed deposit than investing in such stock. Undervalued stocks tend to perform better in the long run and that’s also the reason why most value investors turned rich at an old age. It’s like planting a tree, you get fruits only after some time.

3. Growth – Every quarter companies release their earnings. If the earnings is getting better every quarter and also if the stock price isn’t getting in the saturated zone and if there’s more growth potential then the stock is termed as a growth stock. Some investors tend to invest without looking at the earnings report and also based on assumptions of emerging sectors. For example, the electronic vehicle industry is the new buzzword. On the other hand we still have load shedding issues. Some time back I spoke to a farmer and he said that he wakes up at 1 am to switch on the motor as there won’t be any power during the day. So betting on something by looking at social media news and assumptions can turn bad. The news must be verified with quarterly results before taking the plunge.

4. Dividend – These are stocks that pay regular dividend and have a history of doing so for a long period. A thing to watch out here is, whether the dividend is increasing over the years and also is the stock price increasing over the years. In some cases the dividend amount and stock price tend to be saturated. There are reports that say fixed deposit is better than saturated stocks.

The other two types of stocks are defensive and cyclical, as I’ve already mentioned them in one of my previous post, I wouldn’t be repeating them.

Well, that’s it for this post. Before closing the tab do check out my other posts 🙂

Disclaimer : Trading stocks is subjected to market risks. Please read all the terms and conditions before investing. The motive of this post was to teach little things about stocks for those who do not understand much about stocks. Candidcanblog.com will not hold any responsibility for any losses incurred to the readers of this post.

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