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Lesson 5. The Five Types of Stock > Stock Characteristics - Pg. 25

The Five Types of Stock Plain English 25 Income stocks are stocks that are usually characterized by the issuing company's focus on providing higher dividends as opposed to reinvesting its profits in further growing the busi- ness to provide capital gains. Growth Stocks Growth stocks are stocks that are being valued on their potential, as in the Widget company/apple freeze example in Lesson 4, "What Is a Stock?" Investors usually bet that the companies will become successful as a result of a great product or service or capable management rather than something as dramatic and unpredictable as a crop frost. Growth stocks typically put all the profits they make back into growing the business, so investors buy this stock because they believe the value of the stock will go up as opposed to buying the stock for the purpose of receiving regular or substantial dividend payments. Companies with this type of stock include EMC (computer technology), AOL (Internet service provider), and Wal-Mart (retail sales). Investors who purchase this type of stock usually plan to make their profits by selling the stock for more than they bought it for. It is important then to push growth stock of those companies you believe will ultimately prove successful. Tip Because growth stocks also best operate on the strategy of buy and hold, these too are an excellent stock for novice investors to consider. Be aware, however, that as growth stocks have (and plan) to grow considerably faster than blue chip stocks, so too do the opportu- nities for loss. Penny Stocks