In a stock market with over 7,000 stocks listed on the main exchanges, choosing one is a bit more complex than, say, choosing a flavor of ice cream at the ice cream shop. Luckily, there is a way to categorize stocks by characteristics to make it easier for you to decide what you want.
Let’s take a look at the “different flavors” of stocks…
Chunky Monkey: Growth Stocks
If you haven’t tried this flavor, you’re missing out. Ben & Jerry’s took a risk with this one, and the risk paid off. Chunky Monkey has become one of the highest selling flavors that the company has ever churned out. Similarly, growth stocks belong to companies with high growth potential. The companies are producing a product or service that has the potential of catching on at an exponential rate.
Their P/E ratios are typically higher than the industry average, and their Earnings Per Share and Revenue growth are typically more than 15% year over year.
Why would you buy them? Growth stocks offer the highest potential returns to the investor. If you can stomach the risk of a failed idea that comes with these growth stocks, go for it.
Vanilla: Value Stocks
Ah Vanilla. One of the most popular flavors of all time, and yet so often overlooked and undervalued by those seeking the next thrill in flavors. It’s not until you taste it again that you realize how good it really is.
Ditto for value stocks. Value stocks belong to companies that are popular, but investor oversight has led the company to become undervalued. Value stocks typically have large market-caps, but low Price to Book and Price to Equity Ratios.
Why would you buy them? If you have some appetite for risk and believe that a company that is doing well should be valued more than what it is right now, try your hand at this stock.
Chocolate Chip: Dividend Stocks
Yum! Don’t you just love this flavor? You get the smoothness and richness of the chocolate ice-cream, but with the added excitement of crunchy chocolate chips.
Dividend stocks aren’t that different. Dividends are a sign that the company is doing well and can afford to pay back its shareholders. With these stocks, you get slow but stable growth with the added benefit of regular cash income in the form of dividends. These kinds of stocks are also sometimes referred to as blue-chip stocks.
Why would you buy them? If you have very little tolerance for risk and are looking to buy a safe, mature company with the intent of receiving regular income, look for dividend stocks.
What’s your flavor?
Now that you have some idea of how to narrow down the vast universe of stocks, you can make a better decision about what you are looking for. Different strokes for different folks.
To choose your flavor of stock, browse our stock selection by interest, and then narrow it down to the kind of stock you want.