Stocks represent ownership in a company. They can offer big and small investors the opportunity to participate in a company’s growth.
When studying your investment options, you may come across different types of stocks. Find out what each type means and how they differ to help you decide what to invest in.
Types of stocks by shareholder rights
Buying shares of a company’s stock makes you its part-owner or shareholder. The benefits you’ll enjoy as a shareholder may depend on whether you own common or preferred stocks.
Learn their similarities and differences below.
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Types of stocks by company value
Market capitalization or market cap is a measure of a company's value based on how much its total shares are worth in the stock market. To calculate market cap, multiply the company’s number of outstanding shares by the current share price.
The different types of stocks based on this measure are large-cap, mid-cap, and small-cap stocks. Large-cap stocks are typically more stable than mid- and small-cap ones, but they may also grow slower.
Mid- and small-cap companies are usually only starting out, and so they may have a higher growth potential although they also tend to see bigger swings in share prices.
Types of stocks by growth potential
Prospects for growth is one factor investors look at before investing in a company. Here are the 2 types of stocks that investors look for when seeking growth:
- Growth Stocks
These are shares of companies that are expected to grow at a faster rate than others. Investors in growth stocks aim to maximize profits through capital appreciation, or the rise in an investment’s price.
- Value stocks
Value stocks are believed to be priced less than what they’re worth. Investors buy these stocks with the expectation that their prices will eventually grow to their true value.
Types of stocks by performance
Certain events or circumstances can move stock prices, but some stocks are more heavily affected than others. Cyclical and defensive stocks are noted for their performance amid market trends and major events.
- Cyclical stocks
Prices of cyclical stocks are typically tied to economic performance. They tend to perform better during cycle upturns, but slow down during downturns.
For example, stocks of leisure or retail companies may do better during periods of economic growth when consumers have more money to spend.
- Defensive stocks
Defensive stocks, on the other hand, tend to remain unaffected by the economic cycles. These stocks are often issued by companies in industries that see steady demand for their products and services no matter what’s going on in the world, like healthcare and utilities.
Other types of stocks to know
- Dividend stocks
Some companies pay out dividends to shareholders in the form of cash or more stocks. The company’s Board of Directors decides whether to issue dividends, how often, and what type.
The Philippine Stock Exchange (PSE) Dividend Yield Index shows the performance of the top companies that give out consistent, relatively high dividends.
If you own shares of Real Estate Investment Trusts (REITs), you are entitled to receive dividends by law and so REITs issue a special type of dividend-paying stocks.
- Blue chip stocks
Blue chip stocks are issued by large, well-established companies that are hand-picked by the PSE to serve as benchmark of the local market’s overall performance.
Stocks are known to have high volatility, but blue chips tend to be more stable than others. This means, however, that their growth potential may also be lower and slower.
You can see the movement of the 30 biggest and most actively traded stocks on the PSE Composite Index (PSEi).
- Sector stocks
Another way to categorize stocks is by looking at the business or sector they’re in. The PSE has sectoral indices that track the movement of stocks in specific industries.
They include Financials, Industrial, Holding Firms, Property, Services, and Mining and Oil.
Things to remember
- Stocks can be classified into a lot of different types and all fall under more than one category. For example, blue chips often qualify as large-cap stocks.
- Knowing the types of stocks may give you an idea of how they might perform under different scenarios. This can help you properly diversify if stocks suit your risk tolerance.
- Some types of stocks are characterized by specific measures and criteria, while others may require you to set your own standards.
