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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