The stock market has made a lot of people rich! And to invest in the stock market, you need a gateway which is the stock exchange. A stock is a financial asset denoted as a percentage that represents the ownership of a company. Downloading any app, completing KYC, and starting trading are not just enough, you should know what type of stocks you are investing in, then you can decide which stock is the best for you that can return your higher profits in the future so that you can start investing.
Let’s know about the different types of stocks in detail.
- Common stock
Common stock can be defined as security representing ownership in a corporation. The common stockholders get the power to elect the board of directors of the company. They even get the power to vote in the creation of corporate policies. This form of equity ownership facilitates generating higher profits over a long period. During liquidation, common shareholders can own a company’s assets followed by bondholders, preferred shareholders, and other debt holders getting full payment. The balance sheet of a company includes the common stock’s report in the equity section of the stockholder.
- Preferred stock
Preference shares are commonly known as preferred stock, referred to as shares of a company’s stock with dividends received by shareholders before the issuing of common stock dividends. If the company goes through bankruptcy, then the company has to pay preferred stockholders from its assets before common stockholders. Most preference shares offer a fixed dividend, but don’t offer any voting rights.
- Domestic stock
Domestic stocks can be defined as American companies’ stocks traded on various stock exchanges. While Foreign stocks are referred to as the stocks of companies outside the United States. From the smallest of public companies to the largest of industrial conglomerates come under Domestic stocks. When the stocks are traded on U.S. exchanges called American Depository Receipt (ADR).
Also read: 57 Stock Market Terms That You Should Know
- International stocks
The international stock market is all the international markets allowing investors to hold stocks from companies or governments in countries other than their own. Individuals and stockbrokers make investments internationally so that they can increase their portfolio diversification and spread investment risk among foreign markets and companies. International investing and domestic investing are simply opposite to each other.
- Large-cap stocks
Large-cap is commonly known as a big cap. A company with a market capitalization worth over $10 billion comes under Large-cap stocks. Large-cap stands for the term “large market capitalization.” The number of a company’s shares outstanding is multiplied by its stock price per share to calculate Market capitalization.
- Mid-cap stocks
Mid-cap stocks are commonly known as mid-capitalization stocks. A company with a market capitalization worth between $2 and $10 billion comes under Mid-cap stocks. Mid-cap stands for the term “Middle-market capitalization.” A mid-cap company comes between large-cap (or big-cap) and small-cap companies. Large-cap, mid-cap, and small-cap are subject to change over time, showing the current value of any company.
- Small-cap stocks
Small-cap stocks are commonly known as small-capitalization stocks. A company with a relatively small market capitalization worth between $300 million to $2 billion in market capitalization comes under small-cap stocks. Small-cap stands for the term “Small market capitalization.” The market capitalization of a company is the market value of its outstanding shares. In small-cap stocks trading, you can beat institutional investors. Many mutual funds have some internal rules that don’t allow them to buy small-cap companies.
- IPO stocks
An initial public offering (IPO) can be defined as a process through which the shares of a private company are offered to the general public. A company can raise capital from public investors in a public share issuance. Before holding an initial public offering (IPO), a company has to meet requirements by exchanges and the Securities and Exchange Commission (SEC).
- Blue chip stocks
A blue-chip stock can be defined as a huge company with an excellent reputation. Blue-chip stocks are large and well-established companies with an excellent reputation nationally for quality, reliability, and the ability to generate profits in good and bad times. Now they have dependable earnings with a market capitalization of more than a billion, considered as the market leaders. Such companies have been operating for many years, often paying dividends to investors. They can be among the top three companies in their sector. Blue-chip stocks are among the most popular companies for individuals and stockbrokers to invest in. IBM CorpCoca-Cola Co. and Boeing Co. come under blue-chip stocks.
- Dividend stocks
Dividend stocks refer to those publicly-listed companies paying out regular dividends to their shareholders. Dividend stocks are mostly well-established companies that offer a fair record of distributing earnings. Dividends are payments from publicly-listed companies given to investors as a reward for investing in the venture’s equity. Dividends generate from the company’s net profits.
- Non-dividend stocks
Non-dividend stocks refer to companies that do not pay out regular dividends to their shareholders. Companies that don’t offer dividends on their stock often reinvest from the future dividends on the open market called “share buyback for the expansion and overall growth of the company. If there are fewer shares found on the open market, the earnings per share (EPS) of the company will potentially rise.
- Income stocks
Stocks are categorized into growth stocks and income stocks based on dividends. An income stock can be defined as equity security paying out regularly, often steadily increasing dividends. Shareholders can get consistent dividends over a period of time through income stocks, considered the safer bets during bear market cycles. The overall returns of the majority of the security could be generated from a high yield offered by income stocks. Most Income stocks offer volatility lower compared with the overall stock market, offering higher-than-market dividend yields.
- Cyclical stocks
Cyclical stocks can be defined as the shares of companies changing based on either the economic circumstances of a country or stages in the business cycle. Macroeconomic changes can affect Cyclical stocks whose returns depend on the cycles of an economy. Cyclical stocks offer higher volatility and higher returns during periods of economic strength. Car manufacturers, airlines, furniture retailers, clothing stores, hotels, and restaurants come under companies with cyclical stocks. People can afford new cars and renown their homes, shop, and travel while the economy is well.
- Non-cyclical stocks
Companies that produce items and services that consumers and businesses need mostly come under Non-cyclical stocks. Doesn’t matter whether the economy performs well, people still will be in need of essential items. Non-cyclical stocks continue to perform well regardless of economic trends, widely known as steady earners in good and bad times as well. Food, power, water, and gas come under Non-cyclical stocks.
- Safe stocks
The share prices of safe stocks make comparatively small movements up and down than the overall stock market. Such stocks are commonly known as low-volatility stocks. Typically used in those industries that aren’t much affected by changing economic conditions. Shareholders get dividends, which offers balance to falling share prices during bad times. You can invest in these less volatile stocks and make higher profits over the long term.
- ESG stocks
ESG stocks refer to companies that focus on environmental, social, and governance. ESG investment is considered a sustainable, responsible, impact, or socially responsible investment. Investing in ESG stocks depends on the growing assumption that environmental and social factors may increasingly affect the financial performance of organizations. Company’s energy use, waste, pollution, natural resource conservation, and treatment of animals come under Environmental criteria. The company’s business relationships come under Social criteria. Are accurate and transparent accounting methods a company uses? Whether stockholders are given the opportunity to vote on important issues? come under governance.
- Growth stocks
Growth stocks can be defined as companies growing their sales and earnings at a rate faster compared with the market average. There are no dividends offered in growth stocks. Most investors prefer growth stocks to enjoy profits from the rapid price appreciation, rather than dividends. If the company is growing rapidly, then the share price will go up. Many investors go for a growth stock at a high price based on their expectations.
- Value stocks
Value stocks can be defined as shares of a company traded at a lower price than expected given the performance of the company and key performance indicators of the stock itself. Value stocks are under-valued stocks in the stock market. Value stocks can and growth stocks are opposite to each other. Value stocks allow investors to capitalize on inefficiencies in the market, as there may be no match between the price of the underlying equity and the performance of the company.
- Penny stocks
A penny stock can be defined as a small or growing company with limited cash and resources whose stock is traded for less than $5 per share. You can trade penny stocks on large exchanges such as the NYSE. You can even trade penny stocks over the counter through the OTC Bulletin Board (OTCBB). Investing in Penny stocks is considered to be highly risky and profitable at the same time. Investors with a high tolerance for risk can go for investing in Penny stocks.
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