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The other sectors tend to be cyclical, expanding quickly in good times and contracting during recessions.Īlthough there are more than 6,000 publicly traded companies, the core of your stock portfolio should consist of financially strong companies with above-average earnings growth. In most cases, finance, health care and technology tend to be the fastest growing sectors, while consumer staples and utilities offer stability with moderate growth. So at any given time, some are doing well while others are not. Generally speaking, different sectors are affected by different things. Standard & Poor's breaks stocks into 10 sectors and dozens of industries. Cyclical stocks bounce around a lot as investors try to guess when the next upturn and downturn will come. For example, steel makers see sales rise when the economy heats up, spurring builders to put up new skyscrapers and consumers to buy new cars.īut when the economy slows, their sales lag too. Maybe the company has messed up, causing the stock to plummet - a value investor might think the underlying business is still sound and its true worth not reflected in the depressed stock price.Ī "cyclical" company makes something that isn't in constant demand throughout the business cycle.
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The opposite of growth is "value." There is no one definition of a value stock, but in general, it trades at a lower-than-average earnings multiple than the overall market. Growth stocks race higher when times are good, but as soon as growth slows, those stocks tank. But again, the greater the potential, the bigger the risk. Catch a successful growth stock early on, and the ride can be spectacular. Mid-caps, or medium-sized companies, fall somewhere in the middle.Ī "growth" company is one that is expanding at an above-average rate, much as tech companies did in the 1990s.
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With less developed management structures, small caps are more likely to run into trouble as they grow. Over the long run, small-cap stocks have tended to rise at a faster pace. It's how much investors think the whole company is worth.Ĭompanies with large market capitalizations, or "large-cap" companies tend to be established and stable, but because of their size, they have lower growth potential than small caps. There are thousands of stocks to choose from, so investors usually put stocks into different categories: size, style and sector.Ī company's size refers to its market capitalization, which is the current share price times the total number of shares outstanding. What different types of stocks are there?