As an investor, you should watch out for these six different stock types. Without further ado, let's go into the types.
Penny Stocks
A penny stock refers to a small company's stock that typically trades for less than Rs.20 or even Rs. 50. Penny stocks trade on large exchanges like the National Stock Exchange(NSE), Bombay Stock Exchange (BSE), etc. Penny stocks generally have low liquidity, and because of that, if there is a significant fall in stock price, you would find it difficult to liquidate.
Penny stocks are a kind of High Risk-high reward type of stocks.
Growth Stocks
Growth stocks are those companies expected to grow sales and earnings faster than the market average.
Growth stocks often look expensive, trading at a high P/E ratio. If the expectations are not realized, growth stocks can see a dramatic decline.
Cyclical Stock
Cyclical stocks are affected by macroeconomic changes, where their returns follow the cycles of an economy.
Cyclical stocks are generally the opposite of defensive stocks. Cyclical stocks usually have higher volatility and are expected to produce higher returns during periods of economic strength.
Dividend Stocks
A dividend stock is a stock that regularly distributes a portion of its profits to its shareholders, allowing them to build long-term wealth through a steady stream of income on a systematic basis.
More significant and more established companies with more predictable profits are often the best dividend payers. Not only stocks pay a dividend, but mutual funds, Exchange Traded Funds (ETFs), and more.
Defensive Stocks
A defensive stock is a stock that provides consistent dividends and stable earnings regardless of the state of the overall stock market. Since there is a constant demand for their products and services, they tend to be more durable.
Defensive stocks offer similar long-term gains with lower risk but can underperform the market during bull runs.
Blue Chip Stocks
The name blue chip came from poker, in which the blue chips have the highest value like that blue-chip companies are financially stable, well-established, and well-recognized. Blue-chip companies usually sell high-quality, widely accepted products and services. They are considered to be one of the safest investments.
