1. STOCK CATEGORIES CHAPTER 9

2. STOCK CATEGORIES Income stocks Stocks with histories of paying consistent dividends. They are bought for the current income that regular dividends provide. GE, Pfizer have paid dividends for more than 50 years. Growth stocks Shares in companies that reinvest much of their profits to expand and strengthen the business. They pay few or no dividends. They are purchased with the expectation that the price goes up as the company grows. You do not owe income tax on earnings the company reinvests.

3. STOCK CATEGORIES Blue chip stocks (named after the most valuable poker chip) are the largest, long-established and consistently profitable companies. Offer investors stable and predictable income and steady if slow growth in value. They are often more expensive than stock in lesser or smaller known companies. The list does change from time to time. Penny stocks Sold for $5.00 or less a share, which makes them more attractive than higher priced stocks. Most of these companies may never be profitable or may fold entirely. Some penny stocks have increased substantially in value.

4. STOCK CATEGORIES Value stocks less expensive for a variety of reasons: 1) company has financial difficulty; 2) their potential for growth is underestimated and 3) they are part of an industry that is out of favor or fading.

5. STOCK CATEGORIES Defensive stocks From industries like utilities, drugs, health care and food are often more resilient in recessions (a substantial and general decline in overall business activity over a significant period of time) and stock market slides because product demand continues. Many investors include then in their portfolios as a hedge against sharp losses in other stocks. Cyclical stocks From the airlines, travel, hotel industry that will flourish in good times and suffer when the economy dips. Theory is, if you buy cyclical stocks as the economy rebounds, the cycle may work in your favor.

6. STOCK CATEGORIES Common stock You share directly in the success or failure of a company. A company may offer different classes of stock to appeal to different types of investors and list them separately on a stock market. Sometimes a class indicates ownership in a specific division or subsidiary (a business that another company either owns or in which it has a controlling interest) of a company. Other times it indicates shares that sell at different market prices, have different dividend policies or impose voting or sales restrictions on ownership. Preferred stock Has a guaranteed dividend amount that usually stays the same even if the company’s profit jumps. Are paid before the common stockholders. May get some of their investment back, if a company goes out of business.