Different Types of Stocks You Should Know About

What are stocks?

Stocks or shares signify ownership in a publicly listed company. Investors become stockholders of a company by purchasing its shares. They are authorized to the company’s profits and losses and also get to engage in its future decisions (depending on the type of share that they hold).

Let us see how can stocks be classified.

1. Growth stocks

A growth stock is any share in a company that is supposed to grow at a speed significantly above the average extension for the market. This is because the issuers of growth stocks are usually companies that need to reinvest any profits they gather to expedite growth in the quick term.

2. Income stocks

Income Stock is a kind of assurance that gives regular dividends to the investors. Such stocks are often published by companies with steady cash progress and a well-established business foundation. These companies have huge market capitalization and regularly work at a prime stage in their growth graph.

3. Value stocks

A value stock is a stock with a value that appears low compared to the company’s financial performance, as measured by such fundamentals as the company’s assets, revenue, dividends, earnings, and cash flows.

4. Common stocks

Common stock is a security that signifies ownership in a business. Holders of common stock select the board of directors and vote on corporate policies. Common stock is listed in the stockholder’s equity part of a company’s balance sheet.

5. Preferred stocks

Preferred stock is a segment of share capital that may have any blend of traits not owned by common stock, including parts of both an equity and a debt instrument, and is commonly regarded as a hybrid instrument.

6. Small-cap stocks

SEBI defines the companies from 251st onwards in terms of full market capitalization as Small-cap stocks. A small-cap stock is a company with a business capitalization of less than $2 billion. The market cap applies to the whole amount of a given company’s total shares of stock. When merged with other investment strategies, small-cap stocks can help change a portfolio.

7. Mid-cap stocks

SEBI defines the companies which range from 101–250 in market capitalization as Mid-cap stocks.

In terms of the investment properties, mid-cap stocks typically are less risky, encounter less levity, and may have less growth potential than small-caps — but they are riskier, encounter more levity, and have higher potential gains than large-cap stocks.

8. Large-cap stocks

SEBI defines the top 100 companies in terms of full market capitalization as large-cap companies. Examples of large-cap stocks in India include Reliance Industries, HDFC Bank, TCS, Infosys, etc.

Large-cap stocks — also called big caps — are shares that trade for corporations with a market capitalization of $10 billion or more. Large-cap stocks manage to be less volatile during rough markets as investors rush to quality and stability and grow more risk-averse

9. Hybrid stocks

Hybrid securities are securities that have a blend of debt and equity characteristics. The original hybrid security was preferred stock, representing ownership in a company (like equity) but having fixed payments (like bonds). Since then, companies have structured securities in many various ways.

10. Overvalued stocks

An overvalued stock trades at a price significantly higher than its original earnings and revenue risk implies it should. It may also purchase at a price-to-earnings multiple more expensive than its peers when tuned for future growth.

11. Undervalued stocks

An undervalued stock is described as a stock that is trading at a rate significantly below what is expected to be its inherent value. For example, if a stock is selling for $50, but it is worth $100 based on expected future cash progress, then it is an undervalued stock.

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12. iBeta stocks

The beta is inferred by measuring the price volatility of the stock. Beta can be positive or negative which means whether it flows in sync with the market or against it. The higher the beta, the higher is the risk quotient of the stock. If the beta value is more than 1 it indicates that the stock is more volatile than the market. Many investors who possess this knowledge use it to invest smartly.

13. Blue-chip stocks

They are stocks of those companies that have lower liabilities and steady earnings and which pay regular dividends. These very large and well-recognized companies that have a long history of sound financial performance are a good bet for Investors who seek safer avenues of investment.

14. Defensive stocks

A defensive stock is a stock that presents regular dividends and steady earnings despite the state of the overall stock market. There is a continuous requirement for their products, so defensive stocks manage to be more constant during the several stages of the business cycle.

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15. Cyclical stocks

Stocks of companies that are greatly affected by economic conditions and see high price fluctuations with market changes are cyclical stocks. These types of stocks grow rapidly through the rush cycle but the growth is slowed down in the slow economy. Automobile stocks come in this category.

Final Thoughts

Since there are many kinds of different stocks available, you should check the risk factor involved. How much risk can you afford is very important in all these decisions. You need to think before you add stocks into your portfolio. Analyze well before you make choices.

These are some types of stocks that we would like to tell you about. After knowing about each type, you can choose the best fit. Be very thoughtful before spending on the stocks. Next time, when you rush into an investing decision, wait and think through it well. Hope this article might have helped you to get a better picture of the various types. There are many other ways to learn the stock market for beginners in India, do try that.