equities part VII series 7 outline

Blue chip stocks

1. stock of well established companies
2. have large market capitalization-high number of shares and a high dollar value per share
3. for an investor who prefers low risk and modest price appreciation
4. ex. the Dow Jones Industrial Average 30 stocks

Growth stock

• issued by a fast growing company
• emerging growth or aggressive growth or growth companies
• emerging growth, just went public or has been in business less than two years, more risky than blue chip companies
• aggressive growth companies, in business for a long enough period to be stable, their earnings grow at a faster rate than other businesses in general, fastest growing companies in the economy
• growth companies, in business more than two years, are likely to do well, grow faster than other companies in their industry

cyclical stock

1.  prices fluctuate in response to business cycle
2. automobiles and steel
3. price tends to increase when economy is strong
4. price tends to decrease when the economy is slow

defensive stock

•  do well in recession
• utilities, food, tobacco

defense stocks

• manufacture defense or aerospace equipment
• Lockheed and Grummann

conservative company

• keep borrowing to a minimum
• use common stock for capitalization
• few bonds or preferred stock issued
• debt/equity is bonds and debt compared to stock and retained earnings 

leveraged company

• borrows frequently
• hopes to make more than interest charges
• exception: utilities are highly leveraged because capital intensive, not speculative
• speculative-gambling borrowing will create profits that will cover interest

 Defensive stocks are defined as stocks of which of the following types of companies?

• Utilities. Hold their value even in bad times