Stock Market 101: Different Types of Stocks To Invest In

Stocks are classified according to types and classes, depending on the characteristics and earnings potential. In order to meet your financial goals, it's important that you understand the differences between them.

​When companies become publicly listed in a stock exchange, investors then can buy pieces of a company called stocks or shares. However, there are two types of stocks or shares a company may offer to the public: Common or Preferred.

So, what are the difference between the two stocks?

Common Stock

It entitles the owner to vote a shareholders' meetings (proportionate to the amount they own) and to receive dividends.

• Majority of stocks issued in the stock market comes in this form.
• Shareholders are last paid after creditors, bondholders, and preferred shareholders.

Preferred Stock
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It generally does not have voting rights but has a higher claim on earnings and assets.​ Owners of preferred receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated.

• Function similar to bonds as investors are guaranteed a fixed dividend.
• Not as abundant in the stock market as common stocks.

According to Characteristics
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Blue Chip Stocks
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​Are well-established, nationally known, and generally financially sound companies. Blue chip companies have consistently demonstrated good earnings and industry leadership. Blue chips are typically less volatile that other stocks and have a record of paying dividends in both good and bad times.

Here in the Philippines, we have the PSEi. The PSE Composite Index, commonly known previously as the PHISIX and presently as the PSEi, is a stock market index of the Philippine Stock Exchange consisting of 30 blue chip companies.

Growth Stock
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Growth stock companies have earnings and market share expansion that exceeds the industry average and the economy in general. Growth stock companies typically reinvest their profits to expand and strengthen their businesses, retaining most of their earnings to finance expansion and paying little, if any, dividends to shareholders. Investors are attracted to these stocks because they expect the stock price to go up as the company grows.

Defensive Stock
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These are stocks of companies that provide necessary services, such as utilities that provide electric and gas, supermarkets that provide food, etc. Because the companies representing these stocks fulfill basic human needs, these stocks tend to provide a degree of stability for investors during recessions or economic slowdowns.

Income Stock
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Income stocks typically pay high dividends in relation to their market price, making them attractive to people who buy stocks for current income. Historically, these have been public utilities, but some blue chip stocks may fall into this category as well.

Cyclical Stock
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Cyclical stocks represent companies whose earnings are closely tied to the business cycle. When business conditions are good, a cyclical company generally prospers and its common stock price generally rises. When the economy slows or falls into recession, these companies' earnings and stock prices typically fall. Airlines, automobiles, furniture manufacturers, steel and paper producers are examples of cyclical stocks.