Are you a beginner investor looking to build wealth through the stock market? Then you must know what type of stock you must invest in. this you can do by researching on investor forums such as Investors Hangout.
In stock trading, there are various stocks and are classified using two major metrics. The first is the investor’s expectations and the other is the size of the stock, which is measured by market capitalization.
With this mind, let’s dissect some of the stock types available.
1. Income Stocks
Income stocks define stable and mature companies that pay out consistent dividends. One common factor with these companies is the little room available for growth but still, maintain a steady flow of revenues.
Dividends are payments made to shareholders of companies, but it’s not a guarantee. The dividends represent profits made by the company and they are a form of how companies share the profits with their shareholders.
Some of the income stocks include utilities since they don’t expand as much and maintain consistent dividends.
Companies with this type of stock have a unique stock type known as a preferred stock, which comes with reduced rights but still maintains consistent dividends. This is the only attractive reason to have a preferred stock.
Also, companies with these stocks maintain consistency in stock prices. This is also another reason why income investors bank on them. Their dependability.
2. Value Stocks
When the market wrongly values a company, the price is called a value stock. As a result, the stock price stands at a lower figure than the actual company’s value.
The reasons vary but one of them includes a company undervaluing themselves due to guilt when other companies in the same sector are experiencing turbulent business times. Regardless of the reason, these are the stocks many value investors hunt for.
They do this in the hope that a day will come when the company’s true value will be realized, thus pushing the stock prices up.
This is a classic buy and wait strategy and may take time to achieve success. Nevertheless, doing your own research helps.
3. Growth Stocks
As the name suggests, these stocks just keep growing until a point when they can no longer grow. At this point, the share price will take a free fall unless the slow-down is due to a maturing process which is natural for any growing company.
Growth investors hunt for these stock for a single reason. The share price ascent. Not the dividends because not many companies offer them anyway.
Investors will go for this type of stocks due to their growth rates hoping they’ll maintain the same growth. However, this calls for critical thinking and judgment since not all companies with huge revenues mean handsome earnings.
One of the reasons may be because the company may decide to plough back their earnings to spur more growth. This is a great move if the growth will continue.
Nevertheless, there comes a point when the growth hits a plateau and huge growth isn’t possible anymore. This is when growth investors leave in search of another adventure.
