Different Stock Types and Why You Would Buy Them
In a stock market with over 7,000 stocks listed on the main exchanges, choosing one is a bit more complex than, say, choosing a flavor of ice cream from an ice cream shop. Luckily there is a way to categorize stock types by characteristics to make it easier for you to decide what you want.
The main flavors of stocks are:
Schweddy Balls: Growth Stocks
If you haven’t tried this flavor, you are missing out. Ben & Jerry’s took a risk with this one, and the risk paid off. Schweddy Balls has become one of the highest selling flavors that the company has ever churned out. Similarly, growth stocks belong to companies with high growth potential. The companies are producing a product or service that has the potential of catching on at an exponential rate. Their Price to Equity ratios are typically higher than the industry average, and their Earnings Per Share and Revenue growth is more than 15% year over year. They also usually involve the greatest risk.
Why would you buy this? These kinds of stocks offer the highest potential returns to the investor. If you can stomach the risk of a failed idea that comes with these growth stocks, go for it.
To see if a stock’s P/E ratio and EPS classifies it as a growth stock, check out our quote page.
Vanilla: Value Stocks
Ah Vanilla. One of the most popular flavors of all time, and yet so often overlooked and undervalued by those seeking the next thrill in flavors. It’s not until you taste it again that you realize how good it really is. Ditto for value stocks. Value stocks belong to companies that are popular, but investor oversight has led the company to become undervalued. Value stocks typically have large market-cap, but low Price to Book and Price to Equity Ratios.
Why would you buy this? If you have some appetite for risk and believe that a company that is doing well should be valued more than what it is right now, try your hand at this stock.
To see if a stock is undervalued, check out our P/B and P/E ratios on the quote page.
Chocolate Chip: Dividend Stocks
Yum! Don’t you just love this flavor? You get the smoothness and richness of chocolate ice-cream, with the added bonus of crunchy chocolate chips on top. Dividend stocks aren’t that different. Dividends are a sign that the company is doing well and can afford to pay back its shareholders. With these stocks, you get slow but stable growth with the added benefit of regular cash income in the form of dividends. This kind of stock is also sometimes referred to as a blue-chip stock.
Why would you buy this? If you have very little tolerance for risk and are looking to buy a safe, mature company with the intent of receiving regular income, look for dividend stocks
Find out which stocks pay dividends by checking out the dividend yield field of the stock quote on Wall Street Survivor.
What’s your flavor?
Now that you have some idea of how to narrow down the at-times-overwhelming universe of stocks, you can make a better decision about what you are looking to get out of stock-trading. Different strokes for different folks.
To choose your flavor of stock, browse our stock selection by interest, and then narrow it down to the kind of stock you want using the above categories.