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STOCK - Classifications • BLUE CHIPS • GROWTH STOCKS • INCOME STOCKS • CYCLICAL STOCKS • DEFENSIVE STOCKS • VALUE STOCKS • PENNY STOCKS BLUE CHIPS • Stocks of the biggest companies in the country. • “Blue Chip” comes from poker where the blue chip carries the highest value. • Usually are large, established firms with a long record of profit, growth, dividend payout. • Usually have a great reputation for QM, products, and services. • Generally Blue Chip stocks are the safest stocks to invest in. Examples include: IBM, Coca-Cola, General Electric, Microsoft GROWTH STOCKS • Stocks of companies with profits that are increasing quickly. • Stock price will increase based on the profit increase. • Growth companies tend to spend lots of money on research and development rather than putting the profits back into the company FYI – potential to make quick money is there but the risk is high! INCOME STOCKS • Stocks of stable companies that pay higher-than-average dividends • Usually large, established companies with stable earning. FYI – most large Utility company stocks would be classified as income stock. CYCLICAL STOCKS • Stocks that move up or down in sync with the business cycle. • Earnings and stock prices will increase or decrease with changes in the business conditions or cycle. Examples – Automobile, Housing, Steel, and Industrial Equipment companies. DEFENSIVE STOCKS • Stocks that don’t change based on the business cycle. • Tend to be generally stable and relatively safe in declining markets. • Industries that produce necessity items/goods/services. Examples – Food, Drug, and some Utilities companies. VALUE STOCKS • Stocks that are currently selling at a low price but are considered to be a undervalued. • Usually have good earnings and potential growth but their stock prices just do not reflect it. FYI – Investors who buy value stocks believe that these stocks are only temporarily out of favor and will soon be trading at higher price. PENNY STOCKS • Stocks that are priced very low. • Tend to be very risky. • Issued by companies with a short or erratic history of both revenues and earnings. • Typically valued under $5.00 NEXT Research Assignment – Stock Worksheet