A. Characteristics of Common
Stock
1. Represents a share of ownership in the corporation
2. Gives the investor the right to vote for the board of directors at the
annual stockholder's
meeting
3. For each share of ownership, the investor gets one vote
B. What is Preferred Stock?
1. Represents a share of ownership in the corporation
2. Does not give the investor the right to vote for the board of directors
at the annual stockholder's
meeting
3. Dividends are set at a higher rate than common stock and are paid before
the common
stockholder's get their dividends
C. Classifications of Stocks
1. Blue Chip - Common stock of large, financially stable, highly respected
corporations with
solid records of dividend payment.These stocks are very stable, pay consistent
dividends, and are
relatively safe investments. Examples include General Motors and IBM.
2. Growth Stock - Stocks that show greater than average price appreciation.
Sales, market share
and earnings growth are greater than the average for the industry and economy.
Weaknesses
include lower dividends because profits are reinvested in the company,
may be higher priced, and
require close supervision and strong nerves. Examples include cable television,
pharmaceutical
firms, and computer firms.
3. Defensive Stock - Stocks that are relatively unaffected by changes in
the business cycle.
Examples are industries that produce necessities, such as food and public
utilities.
4. Cyclical Stock - Stocks of industries significantly affected by business
cycle fluctuations.
Company earnings and common stock prices increase or decrease with changes
in business
conditions. Examples of cyclical industries include automobile, steel,
building supplies and
machine tools.
5. Income Stock - Stocks with a high yield. Dividends are high in relationship
to market price.
Retired investors seeking current steady income find these mature industry
stock attractive. Public
utilities are generally income stock.
6. Special Situation - Stocks of companies with potential due to unique
new product or service
in a growing industry. Sales and earnings growth are good, but more than
day-to-day business
potential is involved. If certain developments occur, unusual price changes
may result. Such
developments may include new management, reorganization, discovery of a
natural resource,
innovations, mergers, spin-offs and take-overs. Recent examples include
Amazon.com, US Robotics,
MicroSoft, SpyGlass, and NetScape.
Last updated July 21, 1999
by Megan McCarthy