What Types of Stocks Can You Invest In?
There are many stocks you can invest in towards accomplishing your goals of building financial success and abundance. Stocks are often referred to by their various categories and classifications. You will often hear financial analysts talk about ‘growth’ stocks or ‘value’ stocks to invest in, so we’ve provided a list of those stocks below, and how to define or understand them.
- Common stock
- Large-cap stocks
- Mid-cap stocks
- Small-cap stocks
- Dividend stocks
- Growth stocks
- Value stocks
- Penny stocks
- Domestic & International stocks
Common stock
The majority of stocks you or anyone else will invest in are common stock, which simply means ‘partial ownership of a company. When you hold common stock as a shareholder, you own a partial share of the company and thus value should it increase.
Technically, a stock can go to any upward price, thus giving you an opportunity to profit from the value of that stock rising, but you also take on the risk the value of your investment if the stock goes to zero.
Large-Cap, Mid-cap, Small Cap & Micro-cap Stocks
There are many types of ‘cap’ stocks, which simply refers to ‘capitalization’ or the size of the company’s worth when you consider the total of all their shares.
Companies with a market cap of $10 billion or more are considered ‘large’ cap, and with the recent growth of some mega companies like Amazon, Facebook and Google, all with market caps above $200 billion, they are referred to as Mega-cap stocks.
A general rule of thumb is the larger the cap, the more stable the company is because it has more capital to deploy for R&D, investments, or to pay off debts weathering a downturn in the economy.
Mid-cap stocks are those with a market capitalization between $2-10 billion, and often are considered strong players with well-known brand names, boasting a good size, but are not too small. This allows them to target a combination of growth and profitability.
Small-cap stocks have a market capitalization between $300 million and $2 billion. They are generally considered to have greater rooms for growth but have less stability, and thus can pose a greater risk.
Dividend Stocks
Dividend stocks are simply stocks that provide a dividend to their shareholders on a regular basis, either monthly, quarterly or yearly. These stocks offer a potential second income on your stock portfolio because you have the capital appreciation (increase in value of the stock) along with the dividend you receive on the stock.
Because of this passive income, dividend stocks are often sought out by stock investors because the dividends can help negate some of the risk of the stocks value decreasing.
Growth Stocks
You will often hear the term ‘growth’ stocks floated around. These are stocks that are simply seeing their sales or profitability rise.
It is often the case growth stocks carry more risk due to the fact the companies are pursuing growth, and thus dedicating their resources towards new growth and sales, often at the expense of padding their balance sheet.
Growth stocks can also be companies that are involved in increasing demand in their sector, like many stay at home companies did during the COVID crisis.
It’s important to note a company could be growing in terms of sales and profits, but those numbers can be slowing in comparison to the past, or in relationship to other peers, thus having a potentially negative effect on their stock.
Value Stocks
Value stocks are seen as the other side of the coin to growth stocks. They are generally considered more conservative investments as they are well known, mature companies with a well developed industry not having much expansion left.
One might wonder why invest in value stocks? Because they can often provide stability, or have stable incomes that are less likely to be threatened by changes in the market.
If you are looking for more stable stocks, you should definitely consider adding value stocks to your portfolio.
Penny Stocks
Technically, penny stocks are referred to as any stock valued at less than $1 a share, but recently you’ll hear about traders or investors discuss stocks up to $3 as penny stocks. While technically not correct, its important to note penny stocks are new companies trying to develop a viable product, capture market attention and build revenue.
These are highly speculative investments and often prone to pump and dump schemes thus having tremendous volatility in their share price.
While there are some up and company companies that start off as penny stocks, and actually do grow into well developed companies, this is not the norm.
Domestic and International Stocks
A domestic stock is one that is within the country you are from. Since we tend to focus on U.S. stocks, we refer to any stock with its headquarters in the US as a domestic stock.
An international stock is one from outside the U.S. whereby its headquarters and business primarily reside outside the U.S. While they can have sales/business in the U.S., its not their main headquarters or place of business.
International stocks are often harder to invest in for U.S. residents as brokers don’t often list many stocks outside the U.S. However, many international stocks have a listing in the U.S. to get access to the U.S. stock investors.
Stock Market Sectors
While stocks are broken down by the various types listed above, they are also often categorized by the sector or industry they are in. Below are some of the most basic categories you will find:
Communications: telephone, internet & wireless services like Verizon (NYSE: VZ)
eCommerce: companies that primarily do business over the internet like Amazon (Nasdaq: AMZN)
Financial: banks, mortgage finance & credit card processors like Visa (NYSE: V)
Healthcare: health care insurance providers, biotech & pharmaceutical companies like Johnson and Johnson (NYSE: JNJ)
Materials: construction metals/materials, mining, lumber & chemical companies like DuPont (NYSE: DD)
Technology: hardware, software, or semiconductors like NVIDIA (Nasdaq: NVDA)
Utilities: electric, water or natural gas companies like Exxon Mobil (NYSE: XOM)
Read more about stock market sectors here.