The capital raised by a company through the issue of shares is a stock. Two primary reasons make investors buy a stock: they(the investors) believe the stock will appreciate which will allow them to sell at a profit, or they benefit from investment income which is obtained from dividends paid on a stock. Having knowledge and understanding the different characteristics of stocks (value, growth and income) will help an investor grow his portfolio(group of investments and other assets held by an investor) more efficiently.
value stocks is also called undervalued stocks. It is a type of stock that trades at a lower price than the earnings outlook and performance of the company. Investors who are interested in seeking investment in value stock expect the fortunes of the company to turn around, and the price of the value stock to therefore rise.
The stock price of a value stock may drop due to public perception regarding factors that have little to do with the company’s current operations. For example, the stock price of a well-run, financially sound company may drop substantially for a short time period if one of the company executive becomes embroiled in a serious scandal.
Growth stocks on the other hand, as the name implies, are those that have substantial potential for growth in the foreseeable future. They are more prevalent in some areas such as technology, alternative energy and biotechnology, though most of the market have growth companies.
Majority of the growth stocks comes from newer companies with new products that are likely to make an impact in the market in the future. Some of the operations of the growth companies are well-handledand have good business models which have been set up on the demand for their products.
One of the ways to calculate a stock investment is for an investor to examine the prospects of the company in terms of proceeds and growth in which he/she isplanning to invest. If any company has been generating sufficient profits quarterly, with an anticipation of growth in the following years, the company is actually thriving. The price of its stock should hold up, and positivelyincrease in value with time.