The stock market is home to many different types of stocks.
If you are a novice investor, you might struggle to tell the difference between popular stocks that you can find on the stock market.
What is a blue-chip stock, and why is it important?
What are tech stocks?
These are important questions that will be answered in this ultimate stock guide.
Contents
- What Does It Mean To Invest In A ‘Blue Chip’ Stock?
- Blue Chip Stocks – General Requirements
- What Are ‘Tech Stocks’?
- What are ‘Cyclical Stocks’?
- ‘Defensive Stocks’. What Are They?
- Conclusion | Final Thoughts
The first thing you need to know about the stock market is that each stock is connected to a particular sector or industry.
Some stocks are related to multiple sectors and fluctuate based on news, performance, or other economic data that might impact that particular sector or industry.
There’s probably a good chance that you’ve heard of various stock terms if you’re interested in learning more about investing in the stock market.
If you’re new to the world of stocks, it’s important to familiarize yourself with stock tendencies so you have realistic expectations.
The next section of this guide will explain some of the most popular types of stocks you can invest in.
What does it mean to invest in a ‘blue chip’ stock?
What Does It Mean To Invest In A ‘Blue Chip’ Stock?
Investors generally recognize a blue-chip stock as a major company with decades of proven success.
This recognition usually aligns with consistent growth in the stock market, impressive dividends, and a substantial market cap.
Most popular stocks that dominate various sectors of the market can be considered ‘blue chip’ stocks.
How exactly might you search for this type of stock?
One of the ways that you can easily find a large collection of blue-chip stocks is to look through market indexes like the Dow Jones, S&P-500, or NASDAQ.
Large companies like Apple, Coca Cola, Disney, and Microsoft are all considered among the best blue-chip stocks because they have an incredible reputation for being successful, regardless of market conditions.
They tend to outperform other stocks in bullish markets and don’t struggle as much in bearish market conditions.
These types of stocks generally provide great dividends to investors and are considered extremely low-risk and safe plays for the longer term.
Blue Chip Stocks – General Requirements
- Consistent Stock Price Growth
- Very Large Market Cap
- Dividend Payments
- Outstanding Company Reputation
These are some of the general qualifications for a company’s stock to be considered ‘blue chip’ stock.
There’s no exact formula to qualify a stock as a ‘blue chip’, although most investors would agree that these general requirements are sufficient for accurately describing most blue chip stocks.
What Are ‘Tech Stocks’?
Stocks that are involved in the industry of technology are generally referred to as “tech stocks” in the stock market.
What are some examples of these types of stocks in 2021? One of the most popular technology stocks right now is Zoom (ZM).
Due to economic conditions worldwide, Zoom has prospered during the global coronavirus pandemic and has been an outstanding tech stock for growth in recent months.
This stock primarily focuses on providing instant video communication services to users that want to connect over the internet.
Instant video communication isn’t the only type of technology stock, as technology spans many different sectors and industries.
Intel is another popular company that has a primary focus established in the technology industry.
For many years, Intel has been a reliable technology stock and continues to show investors continued growth.
Technology stocks can be involved with coding, programming, cloud storage, internet communications, computer software, computer hardware, and even cryptocurrency.
Tech stocks have dominated the stock market in the most recent decade because technology is expanding and developing extremely rapidly.
Investors have been eager to jump on board some of the newest technology stocks with the hopes that they will show massive growth in the future.
What Are ‘Cyclical Stocks’?
Cyclical stocks are investments that fluctuate based on the current conditions of the economic market.
For example, during a recession, these types of stocks may struggle to show growth, but they perform exceptionally well when the economy is in a bull market.
Airline stocks, restaurants, manufacturing, and other similar stocks can generally be included in the list of cyclical stocks.
For example, Boeing (BA) and McDonald’s (MCD) are cyclical stocks because they generally align with the stock market’s overall performance.
‘Defensive Stocks’ What Are They?
Defensive stocks are extremely low-risk because they usually show consistent performance, regardless of the market conditions.
Investors like these company stocks because the parent company’s products are generally always in demand from consumers.
Most defensive stocks are not very volatile.
An increased level of price stability can usually be noticed when analyzing this type of stock. Dividends are a popular addition to this type of stock as well.
Long-term investors will usually have a significant portion of their portfolios based on defensive stocks because of their consistent performance and overall stability.
Conclusion | Final Thoughts
Investors are always browsing through the various types of stocks that are available on the stock market.
Most economic experts agree that investors should never have too much of one type of stock in their portfolio.
You don’t want to have all of your eggs in one basket.
It’s usually a smart idea to diversify your portfolio and split up your funds across many industries.
You might want to have a portion of your funds invested in tech stocks, while other portions of your funds are invested in defensive stocks or cyclical stocks.
These types of investment strategies are considered to be very safe in the long term.
Now that you have a clear understanding of some of the most popular stock types, it’s a good idea to start looking for stocks that fit into each category.
Pretty soon, you’ll have a complete list of stocks that define each category that we’ve outlined in this guide for you.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
