Classification of stocks according to investment objective/performance.
- Growth stocks
Growth stocks are those whose earnings are expected to grow an above average rate compared to other stocks in the market. Growth companies tend to be aggressive and are typically characterized by their lack of dividend payments because earning are invariably reinvested into infrastructure and R&D to maintain rapid growth. The higher the P/E and P/B ratios compared to other stocks, the more growth-oriented is a stock. Other attributes of growth stocks are ROE, PEG ratio, pretax profit margins and etc..
- Value stocks
Value stocks are those that are perceived to be undervalued by the stock market, relative to their fair or intrinsic market value. They may be companies whose share prices have dropped significantly following an event or announcement, but which could well bounce back in the future. Value stocks tend to have low P/E and P/B ratios relative to market benchmarks and PEG ratios of less than one.
- Income stocks
Income stocks are not generally renowned for their capital appreciation, but more for their history of regular - and often increasing - dividend payments. An important indicator for income stocks is the dividend yield.
- Cyclical stocks
Cyclical stocks are those whose performance fluctuates with the business cycle. Cyclical stocks are usually those for which demand can be flexible, such as automobile, travel and construction and related-industry stocks.
- Non-cyclical stocks
Non-cyclical stocks(defensive stocks) are those that are henerally resistant to changes in the economic environment. Such stocks will repeatedly outperform the market when economic growth slows. Classic examples are food, beverage, utilities, tobacco and drug companies.
- Seasonal stocks
Seasonal stocks are those whose performance tends to fluctuate depending on the time of the year. Retail companies are obvious example.
- Blue-chip stocks
Blue-chip stocks are large, secure and prestigious companies of the highest class in the stock market.
- Penny stocks
Penny stocks are low-priced, highly speculative stocks of very small companies. They are generally traded in the OTC market or second-tier exchange markets.