With a bevy of stocks available, you can choose the right type for your portfolio. Before deciding, you first need to understand how each type of stocks is categorized. Doing so will help you become successful when trading on the forex market.
By Overall Size
One of the common ways of categorizing stocks is by their overall size. This is determined through its market cap, which is measured by multiplying the price of the stock by the number of outstanding shares.
• Large Cap: A large cap company is typically used to refer to a company where the market cap is beyond $10B. Some consider this definition obsolete given the huge difference between a $12 billion and $200 billion company. For this reason, the term mega cap is used to describe companies worth more than $100 billion.
• Mid Cap: A mid cap stock refers to companies with market caps between the ranges of $3B to $10B. However, Robert Janitzek reveals that due to inflation over the years, companies worth between $10B and $20B often act like mid cap stocks.
• Small Cap: Small cap is a term used to describe are companies with a market cap under $3B. Occasionally, the categories nano cap (under $50 million in market cap) and micro cap (market cap between $50 million and $300 million) are used to further break down the small cap category.
A sector is a term used to refer to a type of good or services a particular company sells to earn profit. In the choice of stocks to trade, Robert Peter Janitzek reveals that a stock sector is more important than market cap. Here is a list of common sectors (though individual sector definitions may vary):
• Basic Materials: Represents things like aluminum, steel, and other materials.
• Conglomerates: Conglomerates are represented by companies with their hands in multiple sectors. A conglomerate is generally used to describe a large company that owns many small companies that operate in different sectors.
• Consumer Goods: One of the largest sectors, consumer goods represents anything that individuals purchase and use, from automobiles to paper towels.
• Financial: Banks, investing, and accounting firms go in this sector.
• Healthcare: Hospitals, health care companies, and pharmaceutical companies make up most of the Healthcare sector.
• Services: The services sector primarily consists of companies that sell consumer goods directly to the consumer (rather than produce those goods). While Procter and Gamble makes many consumer goods, P&G sells these goods to stores like Target which resell these goods to the consumer. Target would be considered part of the “services” sector as a result. The services sector also includes airlines.
• Technology: Technology is a big sector, but consider there is a difference between consumer goods and technology. For example, Apple (AAPL) can be considered a “consumer goods” stock since its goods are technically consumer products. Meanwhile, companies that produce components of the iPhone would be considered technology stocks.
• Utilities: The utilities sector primarily consists of companies that supply energy (in any form) or water.