WHAT ARE SOME DIFFERENT TYPES OF COMMON STOCK?
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Once you have decided to purchase common stock, your choices are
just beginning! Among the numerous alternatives to choose from:
chip stocks are issued by well-established companies with many years of
proven success?like Du Pont, General Electric, and IBM. These tend to be pricy,
lower-risk companies and are the top of the line in stocks.
? Income stocks often are issued by stable companies
that do not have a need to constantly reinvest in new development?for example,
utilities and insurance companies. These companies have a long history of paying
? Growth stocks generally are issued by young
companies or small companies. Investors expect rapid growth from them?many
technology companies fall into that class. Although they may pay low or no
dividends, they offer the promise of quickly rising stock values.
? Speculative stocks are issued by new or unknown
companies and offer the prospect of large profits?at a high risk. This category
includes low-priced penny stocks selling for $5 a share or less. These
are extremely volatile, and some investors are lured into them by disreputable
dealers with promises of high gains.
? Cyclical stocks are stocks that move up or down in
sync with the business cycle. Examples include the housing industry and
industrial equipment companies, because these companies serve the needs of
growing economies. Investors who don't mind buying and selling as the market
fluctuates tend to like cyclical stocks. Individuals who prefer to hold a stock
for a long time may not like them, unless they can weather ups and downs in the
? Defensive stocks are those whose prices stay stable
when the market declines; some even grow. What they have in common is that they
are issued by industries that naturally do well during recessions. Food and
utilities companies are defensive stocks. Debt collection companies also tend to
perform well when the market turns sour.
Now that we have covered the basics, it's time to look at
some factors to consider when buying common stock.