What are the types of stocks to invest?

As investors one is ought to get confused while investing in stocks considering the huge number of companies listed. In this article we give details of different types of stocks which would help the investors to identify them as per their financial goals.

Growth stocks: These stocks are of the companies which are currently in the growth stage. They are looking at expanding their operations. These companies would be involved in new and upcoming fields. They are well-managed companies and the earnings and dividends are expected to grow faster than inflation and the overall economy. The company would be successful if it is able to create leadership and brand name, beat competition and have exceptional growth momentum through the various economic cycles. Since they require capital for growth, there is usually no, or very little, dividend income from growth stock.

In the initial years, price volatility and higher price earning ratio (P/E) would be seen.

Investing in them would require patience as the profits will not occur overnight. But if the companies manage to grow and survive the various challenges, then one can make good returns from such investments. During the tech boom, IT stocks like Infosys, Wipro were the growth stocks. In the current market, bio technology, food processing stocks would be considered as growth stocks. These stocks are for the investors who are willing to hold the stocks in times of volatility and have some amount of risk bearing capacity.

Income stocks: these stocks belong to stable companies. They do not have large capital expenditure. They are in the mature stage. The profits are distributed to the shareholders in the form of a dividend. If you want dividend income and capital appreciation, you should look towards income stocks. Income stocks are sought by conservative investors wanting some exposure to corporate profit growth. These companies have steady stream of revenue. Income stocks tend to have lower risk than growth stocks because these companies are in the business for quite some time and have established their base. The price volatility would be low. Stocks like HUL, Nestle are some examples of income stocks.

Value stocks: these stocks are currently at lower price than their fundamentals (i.e. dividends, earnings, sales, etc.). They are currently undervalued. These stocks have low P/E ratio and price to book value. The assets have more value than the current price. The market has under valued the stock for a variety of reasons and the investor hopes to get in before the market corrects the price. They are like bargains. Post the global crisis in 2008, many stocks had corrected to attractive values.

Blue chip stocks: These are stocks of companies which are well-established companies and have stable earnings and no extensive liabilities. They can be income or growth stocks. They have a track record of paying regular dividends. They are relative safe and stability.

Speculative/ Penny stocks: They are the riskiest stock available. They are stocks of unknown or new companies. One can either make huge profits or lose all the money. These stocks are generally for investors who have high risk bearing capacity.

There is a wide variety of stocks available. One must considers the financial goal and risk bearing capacity before investing. Never listen to tips. Deeply research the opportunities you like. Have patience and invest with belief in the stocks you have researched.