Stocks are the best asset in which you can grow money faster than the inflation rate. You can invest your money based on your risk tolerance or to meet your financial goal. You can trade daily to make money in the short term( that I don’t prefer) or invest for the long term to get the benefit from compounding.
Whatever your goal is of investing money, you need to know which type of stocks work best for you.
There are 8 types of stocks in a stock exchange. Choose the best stocks that meet your investments goals.
1. Dividend or Income Stocks
Income stocks provide income regularly through dividends. Dividends are earnings of the companies attributable to shareholders. Companies that don’t see growth opportunities to invest their money often pay a dividend to shareholders.
Mostly they are large companies who grow their earnings steadily. You’ll also earn money by increasing stock share price. Gas utility, telephone, and electric companies fit into this category.
2. Growth Stocks
Growth stocks companies offer high profit and their income or sales grow year by year exponentially. They provide a high yield therefore they carry high risk. If you can tolerant high risk so you should invest in this stock.
This companies most of the returns come from price appreciation. They can provide low dividends or no dividends because their profit is invested in the company’s growth.
3. Cyclical Stocks
Whose profit is fluctuate to economic business cycle it’s called cyclical stocks. In expansion, the company’s profit rise and conversely, reduce in recession.
This is how the business cycle looks like.
These companies operate in consumer-dependent industries, such as housing and airline. Check the beta of companies to see how stock prices move in order to market fluctuation. A beta of 1 or more indicates the company is cyclical stock.
4. Value Stocks
A stock that is trading at a low price in the market relative to company fundamentals. This stock is favorite among value investors including myself. Value investors often look at companies that have a low p/e ratio, high dividend yield, and low price-to-sale ratio.
The stock price went undervalued because of bad news about the company. If you found this one and stock is undervalued relative to their fundamentals, just buy it and don’t sell unless it got overvalued.
5. Tech Stocks
Tech stocks are technology-based companies that provide technology-based services, products, wireless communication, etc.
Fintech is a finance-technology based company that provide financial-related services or product through technology. Few of the services or products you might be using, such as investing in mutual funds through mobile apps.
6. Blue-Chip Stock
Companies that have been in the industry for more than a decade, have a good reputation, and dominate their industry with 20,000 crores or more market capitalization are known as blue-chip companies. Its earning grow consistently and provide a high dividend yield usually, these are safe investments.
Amara Raja Batteries and sun pharmaactual industries are the blue-chip companies in India. Both company’s historical reports have good income and consistent dividends.
7. Large-Cap, Midcap, And Small-Cap Stocks
Market capitalization is the value of the total company’s shares outstanding divided by its current price. its state companies size in the stock market. Large-cap is a blue-chip company that has a market capitalization of 20,000 crores or more than that. Examples include Reliance, TCS, Infosys, HUL, HDFC Bank, and Nestle.
The small-cap stock has a market capitalization of below 5,000 crores. Examples include Indian Energy Expense, NESCO, Delta Corp, and VST Industries.
Midcap stocks companies have a capitalization of more than 5,000 crores and less than 20,000 crores. Examples include Procter & Gamble health, HFCL, Finolex Cable, and Avanti Feeds.
8. Speculative Stock
This stock is favorite among traders who trade daily. Speculative stock describes that companies have potential earning in the future but may not yet be realized. In the short term, it has high volatility therefore, it has high risk.
Most traders buy when they think the stock price will rise and sell when they think it will go down. Investors also invest in these companies because they think the company will perform well in the future. In speculative stock, there is no guarantee that stock will rise.
These are stocks that trade at exchange. Choose the best stock in which you have an understanding of its business fundamentals. Do not forget, all of these stocks have underlying business whereby you can check how companies running their business and a lot more.