The Six Catagories of Stocks

The Six Categories of Stocks

  1. Slow Growers:
  • Usually, these large and aging companies are expected to grow slightly faster than the gross national product.
  • A sure sign of a slow grower is that it pays a generous and regular dividend.
  1. Stalwarts:
  • Examples: Coca-Cola, Bristol-Myers, Procter and Gamble, Hershey’s, Ralston Purina, and Colgate-Palmolive.
  • 10%-12% annual growth in earnings.
  • If you own a stalwart and it goes up 50% in a year or two, you have to wonder if maybe that’s enough and think about selling. How much can you expect to squeeze out of a stalwart?
  • Always good to keep some stalwarts in your portfolio because they offer good protection during recessions and hard times.
  1. The Fast Growers:
  • Small, aggressive new enterprises that grow at 20% – 25% a year.
  • If you choose wisely, this is the land of the 10 – 40 baggers, and even the 200 – baggers.
  • A fast growing company doesn’t necessarily have to belong to a fast growing industry.
  • The trick is figuring out when they’ll stop growing.

4. The Cyclicals

  • A company whose sales and profits in a regular if not completely predictable fashion.
  • Coming out of a recession and into a vigorous economy, the cyclicals flourish.
  • You can lose more than 50% of your investment very quickly if you buy cyclicals in the wrong part of the cycle.
  • Because the major cyclicals are large and well-known companies, they are naturally lumped together with the well-known stalwarts.
  1. Turnarounds:
  • Potential fatalities.
  • Turnaround stocks make up lost ground very quickly.
  • The best thing about investing in successful turnarounds is that of all the categories of stocks, their ups and downs are least related to the general market.
  1. The Asset Plays
  • Any company sitting on something valuable that you know about, but the Wall Street crowd has overlooked.
  • The asset may be as simple as a pile of cash. Sometimes it’s real estate.

This post was inspired by Peter Lynch’s book, One Up On Wall Street. Purchase it here.

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