There are many different ways of identifying and classifying stocks. Here is an overview of a few different types.
Sector Stocks: This is a group of companies that loosely belong to the same industry and provide the same product/service. A few examples include airlines, software, oil, retail and automobiles. No matter how the overall stock market is doing and no matter what the condition of the economy, it’s important to understand there are always sectors that are doing well and sectors that are struggling.
Income Stocks: Income stocks include shares of corporations that give money back to shareholders in the form of dividends. Stocks that pay a regular dividend tend to be less volatile, though there is always some risk. Receiving regular dividends also can reduce an investor’s loss if the stock price goes down. However, if the company doesn’t raise its dividend each year (and many don’t), inflation can cut into your profits.
Value Stocks: These are stocks of profitable companies that are selling at a reasonable price compared with their true worth or value. The trick is determining what a company is really worth — what investors call its intrinsic value. Some low-priced stocks that seem like bargains are low-priced for a reason. Value stocks are often those of old-fashioned companies, such as insurance companies and banks, that are likely to increase in price in the future, even if not as quickly as other stocks.
Growth Stocks: These are stocks of companies that are expected to grow faster than the competition. The price of growth stocks can be very high, even if the company’s earnings aren’t spectacular. Growth investors believe the corporation will earn money in the future and are willing to take the risk. These stocks rarely pay a dividend, as the corporation wants to use every cent it earns to improve or grow the business. Growth stocks can also be highly volatile.