WHAT ARE THE TYPES
OF STOCKS?
There are thousands of stocks to which can be classified into multiple
categories on various parameters.
• Stocks On The Basis Of Ownership: This is the most basic
parameter for classifying stocks. The issuing company decides
whether it will issue preferred, common, hybrid or
embedded-derivative stock.
Preferred Stocks
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•
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They promise investors a fixed amount of dividends every year
They enjoy priority when the company distributes surplus money
The price of preferred stocks is stable
Shareholders may not have voting rights
Common Stocks
• They do not promise investors a fixed amount of dividends
• The price of common stocks is volatile
• Shareholders have voting rights
Hybrid Stocks
• Preferred shares that want to be converted into common stocks are
called hybrid
• Shareholders may/may not have voting rights
Embedded-derivative Stocks
• These are stocks with call or put option
Stocks can be bought (called) back by the company at a certain price
or time. Or stockholder can sell stocks to the company at a prescribed
time or price.
• Stocks on the basis of market capitalization (cap): Stocks
are also classified on the basis of the market value of the total
shareholding of a company. There are three kinds of stocks in
this category:
Small-cap Stocks
• Companies with a market capital in the range of up to Rs. 250 crore come
under this category
• These stocks are best for investors who want to generate gains in the long run
• Stocks of these companies tend to be volatile and may decline/increase
dramatically
Karo trading ka Shree Ganesh
WHAT ARE THE TYPES
OF STOCKS?
Mid-cap Stocks
• Companies with a market capital in the range of Rs. 250 crore and Rs. 4,000
crore come under this category.
• These stocks offer a twin advantage: growth potential as well as the stability of
a company.
• Stocks of these companies tend to grow well over the long term.
Large-cap Stocks
• Stocks of very large companies in the market such as Tata, Reliance, ICICI
Bank come under this category. They are often blue-chip firms.
• Investors gain the advantage of reaping higher dividends, while also ensuring
the long-term preservation of their capital
•
Stocks on the basis of dividend payments: Dividends are the
primary source of income until the shares are sold for a profit. On
the basis of how much dividend the company pays, stocks can be
classified as below.
Income Stocks
• These are stocks that distribute a higher dividend in relation to their share price.
A higher dividend means larger income
• They represent companies that distribute consistent dividends. These
companies are not high-growth companies, which is why their stock’s price
may not rise much
• These are low-risk stocks preferred by investors who are looking for a
secondary source of income
• Investors are not taxed for their dividend income
Growth Stocks:
• Companies that prefer to reinvest their earnings for company operations come
under growth stock. They help the company grow at a faster rate.
• They represent companies that grow at a faster rate. With the company, its
share also increases. These stocks draw the investor a higher return when the
stock is sold.
• Investors choose these stocks for long-term growth potential
• If the company ceases to grow, it cannot be called a growth stock. This makes
a stock more risky than income stocks.
Karo trading ka Shree Ganesh
WHAT ARE THE TYPES
OF STOCKS?
•
•
Stocks on the basis of fundamentals: Investors believe that a
share price should equal the intrinsic value of the company’s share.
Thus, they compare share prices with per-share earnings, profits
and other financials to arrive at the intrinsic value per share.
•
If a share price exceeds the intrinsic value, the stock is believed to be overvalued.
In contrast, if the price is lower than the intrinsic value, the stock is considered to
be undervalued
•
Undervalued stocks are also called ‘value stocks’. They are preferred by value
investors, as they believe its share price will eventually rise in the future.
Stocks on the basis of risk: Some stocks are a little riskier than
others. This is because their share prices fluctuate more. However,
just because a stock is risky does not mean investors should avoid
it. Risky stocks could have the potential to make you greater profits.
Blue-chip Stocks:
• Well-established companies with stable earnings come under this stock
category. These companies have lower liabilities like debt
• Blue-chip stocks are considered safe and stable
Beta Stocks:
• The analysts measure risk is called beta. It calculates the volatility in the price.
Higher the beta, greater the volatility and thus more the risk
• These stocks are likely to move in sync with the market or against the market
•
Stocks on the basis of price trends: SPrices of stocks often
move in tandem with company earnings. Stocks are thus classified
into two groups:
Cyclical Stocks:
• Stocks of these companies rise during economic booms, and fall as the
economy slows down.
• Stocks of automobile companies are the best example of cyclical stocks.
• These stocks are preferred when the economy is booming.
Defensive Stocks:
• These stocks are issued by companies which remain unmoved by economic
conditions.
• Best examples are stocks of companies in the food, beverages, drugs and
insurance sectors.
• These stocks are preferred when economic conditions are poor
Karo trading ka Shree Ganesh