Do you hold stocks in your portfolio? Do you want to build a strong portfolio? If yes, then it is all the more important for you to understand the type of stock that finds a place in your portfolio. Do you know that there are different types of stocks? I am sure most of us invest in stocks just by looking at the name of the company and in the company’s dividend policy or on the basis of expectation of appreciation in its market value. But a fact that most of the people are not aware of is that the technique of dealing with the different types of stocks are different. Therefore, you must be aware of the various types of stocks. Let us take a brief look at it:
- Slow Growers – These are the stocks which belong to the large sized companies and are established companies. The stock of these companies does not grow faster, in fact they are not expected to grow faster in comparison to the growth in economy. So, for these kinds of stocks, you should not expect capital yield. However, since these companies are established and stable companies, these stocks happen to yield a good return. Therefore, if you wish to hold a stock for long term and are more interested in hefty dividends year after year, then slow growers should be your choice. Generally, these companies grow at a rate of 5 to 7%. You will find most of the slow grower stocks in utility sector.
- Stalwarts – This kind of stocks also belongs to large sized companies but these companies usually grow at a rate of 10 to 15%. Due to the nature of the offerings of these companies, their stocks yield a good return even at the time of market downturn. If you purchase the stock of these companies at a right time and at right price, then you may earn a decent amount from your transactions. You will find most of the FMCG’s, Information Technology and pharmaceutical company’s stocks in this category. Therefore, if you wish to hold a stock for long period and/ or want a good return, then these stocks are surely your choice to invest in.
- Fast Growers – These stocks mainly belong to small sized companies with an aggressive growth rate of 20 to 25% per annum. Within a short span of time, these companies can give good returns. However, the word of caution for these companies is that the stocks are more volatile. If on one side, the stocks grow at a fast rate then on the other hand, the stocks of these companies are more risky.
- Cyclicals – These stocks belongs to those companies which are very inconsistent in terms of their revenue growth. During downturns, these companies may grow between 5 to 6% and in upturns, the rate of their growth may touch 18 to 20%. The stock prices are more predictable in line with the economical or industrial cycle. That is, the impact of economic conditions is felt on the stock prices of these companies. You will find the automobile companies, companies engaged in construction, metals, banking, etc. in this category. Therefore, you cannot expect a regular dividend from these stocks. However, you can expect a capital appreciation in the market value of the shares. But always remember, that with good returns, the stocks of these companies are highly volatile.
- Turnarounds – These stocks are the ones who because of various reasons are badly hampered in terms of prices and reputation but are expected to regain their market position quickly. If you can identify a turnaround stock and invest in it then within short span of time, you can get quick returns, more in terms of capital appreciation. However, these stocks are highly risky.
- Asset Plays – These stocks belong to those companies which are often overlooked by the market. The key assets that these companies held make them different from the other companies. These companies usually have huge capital reserves of they have huge investment in the real estate that has not been correctly valued. However, finding these companies is a daunting task. But these companies are a safe bet to invest in as even in downturns, these companies have assets to support their functioning.
Since now you know the type of stocks, you can identify the stocks in current or future portfolio and can strategize your investment decisions accordingly.
