Stocks 101

Our previous entry looked at the basic definition of a stock, and this installment will take a look at some of the different characteristics of stock.

One distinction of stocks is growth vs. value stocks. As implied by the name, a growth company is expected to grow at an above-average rate relative to the market. Every sector of the market has growth companies, but they are more prevalent in some areas such as technology, alternative energy, and biotechnology.

A value stock, on the other hand, trades at a lower price relative to its fundamentals (earnings, sales, dividends, etc.). Value stocks can carry less risk than growth stocks because they are usually found with larger, more-established companies.

Another way stocks are classified is according to market capitalization, the market value of its outstanding shares. These definitions may vary among brokerages, but here is one basic breakdown:

• Large-Cap Stock – value of more than $10 billion.
• Mid-Cap Stock – value between $2 billion and $10 billion.
• Small-Cap Stock – value between $300 million and $2 billion.
• Micro – value of roughly $50 million to $300 million.

Finally, the area of the economy in which businesses share the same or a related product or service is known as its sector. The stock market is made up of 10 sectors: financials (banks, insurance, real estate), utilities (water, gas and electric providers), consumer discretionary (retail, media), consumer staples (food, basic necessities), energy, health care, industrials (aerospace, defense, construction, manufacturing), technology, telecom, and materials (mining, chemical).

Stocks can provide a significant return from future growth, current undervaluation, or dividend income – or from a combination of these. Contact Ambassador Advisors for more information and for help getting started in the stock market.