Time to Breakdown Different Stock Types
Time to Breakdown Different Stock Types
Not all stocks are the same, so let's explore the key categories
Before we Begin
I have written three previous articles breaking down the most important things that connect to this topic. Check them out here before continuing on to this one:
How to Apply Diversification to Your Investing Portfolio:
https://inbetweennewsletter.substack.com/p/how-to-apply-diversification-to-your
How to Start Investing - From the Very Beginning:
https://inbetweennewsletter.substack.com/p/how-to-start-investing-from-the-very
I Challenge Everyone to Start Budgeting Their Money. Here is How to Begin!:
https://inbetweennewsletter.substack.com/p/i-challenge-everyone-to-start-budgeting
All Stocks Aren’t the Same?
No, they are not!
This is a big misconception when it comes to the stock market. Each stock is categorized based on a few key details: size, industry, and product/service. This is an important topic to cover because before buying a stock, you should always do research into what type of stock it is. This will help you diversify your portfolio, manage risk, and have a clear understanding of your financial goals.
I am going to break down 6 different categories of stocks in this article, while also giving examples of what kind of stocks you can find in these categories.
Let’s dive right in!
Types of Stocks
1. Blue Chip
It is always a good idea to start with the biggest and the best. This brings us to Blue Chip stocks. These are large companies that have a long history of established operational success. My guess is when the average person thinks of big, profitable stocks, they are thinking of real Blue Chip stocks. Below is a quick list of some examples of real stocks in this category:
- Disney
- Johnson & Johnson
- Coca Cola
- AT&T
- Proctor Gamble
When having that long-established success, it also comes with being a market leader in the sector they represent. Like you can see above, Coca Cola is the industry leader of the beverage industry. These stocks also come with a lot of popularity and make up big portions of people’s portfolio.
2. Growth
Growth stocks are the biggest buzz in today’s financial world. Why? Well, it is in the title. They have a lot of growth potential. These are the companies you hear in the news all the time crushing earnings and sales each and every month with new technology or products they produce. A few examples are:
- Amazon
- Netflix
- Adobe
- Salesforce
You might go look at the charts of these stocks and be amazed at how fast they have grown over the past decade. That is why they are in this category. These companies focus on taking all their earnings and reinvesting them back into the business to keep the momentum going. These stocks can offer an interesting ride for investors to say the least as the volatility can be higher with companies like these.
When thinking about growth stocks, always think about the future. You will see that thought process when looking into the prices of these stocks, making them sometimes overvalued when the markets are hot.
3. Dividend
This has to be everyone’s favorite type of stock because it is the stock that pays you to own it. Yeah, you read that right. A dividend stock is when a company decides to share some of the earnings with its shareholders. Those shareholders are anyone that owns at least one share of those stocks. Here is a list of some big-name dividend stocks:
- IBM
- Microsoft
- Verizon
- JPMorgan Chase
- Texas Instruments
The catch with dividends is they vary based on company and share price. Some companies offer a higher dividend percentage while others offer a lower percentage. Depending on how many shares you have will also determine how much you get paid in dividends.
Also, no you are not going to get paid every day or every week. Let’s set realistic expectations here. Dividends are usually on a cadence of quarterly basis or even longer.
Some people make great passive income off of dividends but that takes time and compound interest.
4. Cyclical
This category is all about the economy. When the economy shifts, these stocks shift. You can see in the name it comes from the word, “cycle.” That is because these stocks can be monitored via cycles of our overall economy. In booming economies these do great, and in recession economies these can do poorly. They flow like water in whatever direction the current is taking them. Here are a few examples below:
- Boeing
- Nike
- Ford
- Carnival
- Draftkings
As you can see, there is a trend with these stocks. Just look at how Covid-19 has affected these kinds of companies. Planes weren’t flying as much, that reflected in the stock price. People weren’t going into retail stores as much, that reflected in the stock price. Fans were not allowed at sporting events, that reflected in the stock price. You get the point.
This category can be a strength during the good times and bust during the bad times. So read the room before making quick decisions on these ones.
5. Defensive
It is only right to follow up the last category with this category. Wanting to play some defense in your portfolio to withstand changes in the economy? Well, that is what these stocks are for!
These stocks can withstand uneasy times in the markets because they have stable long-term earnings. You can kind of think of these like Blue Chip stocks as they share similar stocks in each respected category. Here are a few examples below:
- Walmart
- Costco
- FedEx
- Coca-Cola
- Deere
See what I mean? These are staple companies that no matter what is going on in the world, they are holding strong. You always need groceries, right? If you are unsure about the market or just want to add a layer of protection to your portfolio, there are plenty of defensive stocks out there for you.
6. Penny
Oh, the famous Penny Stocks. This type of stock has quite a reputation as people use this category trying to find the next Amazon stock or trying to make a quick buck off of a high volatility with a large number of shares.
Penny stocks have a wide range of definitions, but overall, just think of them as small companies that trade for less than about $10, give or take. I personally stay away from penny stocks, but some people stand by them as a means of making a living. High volatility mixed with uncertainty in their business model leads to an interesting dynamic in the price changes.
Below are some examples of some popular penny stocks:
- Nokia
- Elys Game Technology
- Investview Inc
- Silver Star Energy
- Hollywood Inter Inc
It is starting to become clearer, right? If it is not clear, that was my point. These companies are not household names and are still getting off the ground. Make sure you do a ton of research before investing in penny stocks.
Overall
I hope this gave everyone a great understanding of the differences in stock types. As you can see, some even overlap.
This information can be great for a new investor who is trying to learn the basics of trading and understanding the verbiage of the stock market. So, you’re welcome.
Disclaimer: This is not financial advice. All opinions are my own. You should always talk to a financial expert before investing your money.
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Ngl foe this is going to help me so much