Stock Labels Mostly Unofficial Stock Classifications

Basics

There are only two types of stocks, common and preferred.  However, if you read a newspaper or listen to an analyst on TV or radio you will hear them talking about other types of stocks.  These are just labels, which are loosely defined for stocks that have similar characteristics.  Many companies can have more than one label.

Blue-Chip Stocks

These are stocks of national companies that have a long record of profit, dividends and growth.  They are also known for their company’s quality management, products and services.  Some are part of the Dow Jones Industrial Average, such as General Electric and Exxon Mobil.  They are considered safe, reliable and provide decent dividends and income, although with generally limited growth.

Cyclical Stocks

These are stocks that rise and fall with the economy.  They benefit with a hot and growing economy and suffer during a recession.  Companies that are in the housing, airline, and steel sectors are examples of cyclical stocks.

Defensive Stocks

These stocks are considered to be shielded/protected against business cycles, especially during bad times.  People buy products or services from defensive stock companies in good times and bad because they need these products.  They are not luxury or discretionary items.  Companies who have this label might be in the food, beverage, drug and pet food industries.

Geography Stocks

Like its name, stocks in a similar geography are grouped together, especially those in foreign countries or areas such as China, Asia, India, Brazil and Latin America.

Growth Stocks

These are stocks that are viewed as growing faster than both the economy and the rest of the stock market.  Investors buy them for their growth expectations in both earnings and capital gains (increase in stock price).

 

Income Stocks

These are stocks that consistently pay high dividend rates.  Stocks in this group include electrical utilities, banks and other financial firms (see Stock Dividends & Dividend Re-Investment Plan (DRIPs).

Penny Stocks

Stocks that sell from a penny to $5 a share are referred to as Penny Stocks.  The SEC also defines this as any stock traded over the counter that sells for less than $5 a share.  Most microcap stocks are penny stocks.

 

Segment Stocks

This refers to stock in a particular industry.  Some people will talk about an industry segment, or sector, such as technology or pharmaceuticals.  Just be aware that performance of an individual stock within a segment can vary significantly from that of the general segment.

 

Speculative Stocks

These are the young up and coming companies.  They can be very erratic.  You can make a killing on these stocks or lose everything.  Most of the dot.com stocks were a prime example of speculative stocks.  Most speculative stocks do not do well in the long range, so grab the big gains when you can, then get out.

 

Value Stocks

These are the stocks everyone wants!  These stocks are considered underpriced in relation to the company’s earnings and as it compares to the price of other stocks.  Investors see value stocks as a stock trading at a bargain price, if the company has good fundamentals, Investors hold on to them until the price rises to reflect their full value, thereby providing a profit.