Stocks Investment Categories
For many people looking to invest in the market, common stocks make sense. Historically, common stocks are the best type of investment, out performing the bond market and other investment tools. However if you plan on purchasing common stocks, you should be aware of the different investment categories, here is some information.
There are many categories that you can purchase common stocks in, however the most popular categories are; Blue Chips, Growth Stocks, Cyclical Stocks, Speculative Stocks and Defensive Stocks.
Blue Chips stocks are considered the cream of the crop. They are the top stock performers in their industry. Most of the larger companies in America are considered Blue Chip Stocks such as Microsoft, GE, Altria, Exxon-Mobil, Merck, Walmart, etc.
Growth Stocks are companies that are looking to grow. These stocks usually pay low or no dividends in order to save money and expand. A typical Growth Stock will have low yields and a very high price to earning ratio (P/E).
Cyclical Stocks are another way to invest in common stocks. Cyclical Stocks are usually defined as stocks that fluctuate with business cycles. Most likely, cyclical stocks are distributed by companies that have large fixed costs such as factories or plants. Cyclical Stocks are also very sensitive to earnings performance and can rise and fall each quarter based upon their earnings and speculation. Most often steel companies, energy companies, textile companies and machinery stocks are categorized as Cyclical Stocks.
Speculative Stocks are usually categorized as extremely volatile stocks and are usually a big gamble. These stocks usually have no track record or have many factors that can cause instability and price fluctuations. Most notable types of Speculative Stocks are commodity stocks, penny stocks, and options.
Defensive Stocks are also a popular category in common stocks. Defensive Stocks are considered the opposite of Speculative Stocks; they are very stable, very conservative stocks. They might be slow in growth, but usually rise and stay ahead of the curve during recession. Most notably, Defensive stocks include energy stocks, food and necessity stocks and stocks that are considered staples such as soft drinks.
