Growth stocks and value stocks
Another categorization method distinguishes between two popular investment methods. Growth investors tend to look for companies that are seeing their sales and profits rise quickly. Value investors look for companies whose shares are inexpensive, whether relative to their peers or to their own past stock price.
Growth stocks tend to have higher risk levels, but the potential returns can be extremely attractive. Successful growth stocks have businesses that tap into strong and rising demand among customers, especially in connection with longer-term trends throughout society that support the use of their products and services. Competition can be fierce, though, and if rivals disrupt a growth stock's business, it can fall from favor quickly. Sometimes, even just a growth slowdown is enough to send prices sharply lower, as investors fear that long-term growth potential is waning.
Value stocks, on the other hand, are seen as being more conservative investments. They're often mature, well-known companies that have already grown into industry leaders and don't have as much room left to expand further. Yet, with reliable business models that have stood the test of time, they can be good choices for those seeking more price stability while still getting some of the positives of exposure to stocks.
IPO stocks
IPO stocks are stocks of companies that have recently gone public through an initial public offering (IPO). They often generate a lot of excitement among investors looking to get in on the ground floor of a promising business concept. But they can also be volatile, especially when there's disagreement within the investment community about their prospects for growth and profit. A stock generally retains its status as an IPO stock for at least a year and for as long as two to four years after it becomes public.
