How Stocks Are Classified

Stocks can be confusing. Before you try to invest in them, you should acquaint yourself with how stocks are classified. Businesses divide their company “stock” into many different shares, and when the business forms, it must declare how many shares exist. The value of each share is connected to the total dollar amount invested in a business. When you buy stocks, you are essentially purchasing partial ownership in a business. There are different types of stocks, and each type is called a class.

Blue Chip Stocks

A blue chip stock is one that is offered publically by a very large, stable company. Google and Wal-Mart are two great examples of blue chip stocks. These companies stand the test of time, and their power and stability is what earns their shares the name blue chip stocks.

Income Stocks

Income stocks are stable. They have a good history of consistent, high-paying dividends for shareholders. Public utilities and telecommunication companies are some of the most common kinds of income stocks on the market today.

Growth and Value Stocks

Growth and value stocks are straightforward. Companies that experience profit margins that increase faster than economic growth offer growth stocks. Companies who have stability but whose profits have dipped offer value stocks. Investors consider value stocks a “bargain” because when the market self-corrects, the price of these stocks generally increases.

Small, Mid, and Large-Cap Stocks

Small-cap stocks are those that have a smaller market capitalization than others. Although the definition can vary, most analysts agree that companies that have a market capitalization from around $300 million to $2 billion offer small-cap stocks.

A mid-cap stock is the abbreviated version of “middle capitalization” and it refers to stocks offered by companies that have market capitalization somewhere from $2 billion to $10 billion.

As the name implies, large-cap stocks are stocks from companies with the largest market capitalization. Companies with a value greater than $10 billion are considered to have large-cap stocks.

Cyclical Stocks

If a company is said to have cyclical stocks for sale, this means that the company offers stocks with profits and sales that fluctuate at a higher rate than other more stable stocks. The fluctuation generally happens in tandem with economic dips and spikes, so when the economy is bad, the market price of these stocks will likely decrease. When the economy picks back up, the prices of these stocks will generally rise are well.