Different Types of Stock That You Should Know

By: Makabongwe Maseko

I bet you can’t tell me the detailed meaning of stocks. Well if that’s the case, I have compelled this good stock information list with brief descriptions for you.

Stock Classes

Although common stock usually entitles you to one vote for every share that you own, this is not always the case. Some companies have different “classes” of common stock that vary based on how many votes are attached to them. So, for example, one share of Class A stock in a certain company might give you 10 votes per share, while one share of Class B stock in the same company might only give you one vote per share. And sometimes it is the case that a certain class of common stock will have no voting rights attached to it at all.

So why would some companies choose to do this? Because it’s an easy way for the primary owners of the company (e.g. the founders) to retain a great deal of control over the business. The company will typically issue the class of shares with the fewest number of votes attached to it to the public, while reserving the class with the largest number of votes for the owners. Of course, this isn’t always the best arrangement for the common shareholder, so if voting rights are important to you, you should probably think carefully before buying stock that is split into different classes.

Large Cap, Mid Cap and Small Cap

Stocks can be classified according to the market capitalization of the company. The market capitalization of a company represents the total lilangeni value of the company’s outstanding shares. This is equal to the current market price of its stock multiplied by the number of shares of stock that it has outstanding. That number gives you the market value of the company, which is one measure of the company’s size. Roughly speaking, there are three basic categories of market capitalization: large cap, mid cap, and small cap. The definitions for each of these might vary somewhat depending on whom you’re talking to, but usually they are as follows:

• Large cap: market cap highest valued
• Mid cap: market cap mid range value
• Small cap: market cap lowest value

In general, the larger the cap size, the more established the company and the more stable the price of its stock. Small cap and mid cap companies usually have a higher potential for future growth than large cap companies, but their stock tends to fluctuate more in price.

Sector Stocks

Stocks are often grouped into different sectors depending upon the company’s business. Standard & Poor’s breaks the market into 11 different sectors. Two of these sectors, utilities and consumer staples, are said to be defensive sectors, while the rest tend to be more cyclical in nature. The other nine sectors are: transportation, technology, health care, financial, energy, consumer cyclical, basic materials, capital goods, and communications services. Of course, other groups break up the market into different sector categorizations, and sometimes break them down further into sub-sectors.

Cyclical Stocks

Stocks can be classified according to how they react to business cycles. Cyclical stocks are stocks of companies whose profits move up and down according to the business cycle. Cyclical companies tend to make products or provide services that are in lower demand during downturns in the economy and higher demand during upswings. The automobile, steel, and housing industries are all examples of cyclical businesses.

Defensive Stocks

Defensive stocks are the opposite of cyclical stocks: they tend to do well during poor economic conditions. They are issued by companies whose products and services enjoy a steady demand. Food and utilities stocks are defensive stocks since people typically do not cut back on their food or electricity consumption during a downturn in the economy. But although defensive stocks tend to hold up well during economic downturns, their performance during upswings in the economy tends to be lacklustre compared to that of cyclical stocks.

Tracking Stock

A tracking stock is a type of common stock that is tied to the performance of a specific subsidiary of the company. This means that the dividends and the capital gains for the stock depend upon the subsidiary rather than the company as a whole. Owning a tracking stock does not give the owner voting rights in the corporation, nor do owners of tracking stocks have a legal claim upon the general assets of the corporation. A company will sometimes issue a tracking stock when it has a very successful division that it feels is under appreciated by the market and not fully reflected in the company’s stock price.

The stock categories discussed apply to the two stock fundamental categories, common stock and preferred stock. And is of use no matter how small or big the company maybe and which is very useful information that you may apply on to your business or to expend your stocks knowledge.

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Makabongwe Maseko offers advice on the business industry on his weblog "Online Marketing Business Opportunity". To get more information and tips on business matters visit: online-marketing-business-opportunity.traders-online.net/

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