Classification of Stocks

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Jul20

Classification of Stocks

Linda Chan

Know More: Securities-generally 2.0, Securities-generally

The following is provided for informational purposes, and not meant to be legal of financial advice.

For the in-house attorney who acts a trustee or on the investment committee of a company’s 401(k) plan, it helpful to understand basic classifications of stocks.

Blue Chip Stocks characteristics:

1. High-grade issues
2. Established, stable, mature companies
3. Financial strength: Long and unbroken record of earnings and dividend payments

Growth Stocks characteristics:

1. Of a company whose sales, earnings, share of market are expanding faster than the general economy and industry average
2. Aggressive, research minded
3. Pay little or no dividends; retained earnings use to finance expansion

Defensive Stocks basics:

1. Resistance to recession; stability during declining economy
2. Necessary service
3. Examples: electric and gas, tobacco, soft drinks, candy, food
Income Stocks basics:

1. High dividends in relation to market
2. Examples: public utilities

Cyclical Stocks basics:

1. Earnings fluctuate with the business cycle
2. Examples: steel, cement, machine tools, automobiles

American Depository Receipts (ADR):

1. Securities used to facilitate trading of foreign stocks in U.S.
2. Claim to foreign securities
3. Shares held by U.S. banks abroad
4. Dividends paid in U.S. dollars, not foreign currency

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