Stocks are classified according to types and classes, depending on the characteristics and earnings potential.
According to RIGHTS
- Common stock
It is a security usually purchased for participation in the profits and control of ownership and management of the company. A common stockholder exercises control through voting rights during annual or special stockholders’ meetings, but can only claim rights to the company’s assets and earnings when preferred shareholders are already paid in full.
Most of the issues traded in the local stock market are common stocks. Common stocks are also known as “ordinary shares.”
- Preferred stock
It is a security whereby the holder has a higher claim on the assets and earnings of the company.
In terms of dividend payment and liquidation, preferred shareholders have priority over common shareholders. Though preferred stockholders do not have voting rights, they are entitled to receive dividends before any dividends are paid to the common stockholders.
Preferred stocks usually have a specified limited rate of return or dividend and a specified limited redemption and liquidation price. Preferred stocks are also known as “preference shares.”
According to OWNERSHIP
Common shares may further be classified into:
- Class A – These are stocks that can be exclusively traded by Filipino investors.
- Class B – These are stocks that can be bought and sold by both Filipino and foreign investors.
Both classes have the same privilege and receive the same amount of dividends. Such classification of common shares is done to monitor the equity ownership of both local and foreign investors.
According to SECTORS
Stocks listed and traded on the PSE are classified into six (6) sectors:
Financials Sector – includes companies engaged in banking, investments, and finance.
Industrial Sector – includes companies involved in the following:
a. Electricity, Energy, Power, and Water
b. Food, Beverage, and Tobacco
c. Construction, Infrastructure, and Allied Services
e. Electrical Components and Equipment
f. Diversified Industrials
Holding Firms Sector – includes companies or firms that control or manage partial or complete interest in another company or other companies. Usually, these companies do not produce goods or services itself; rather, its purpose is to own shares of other companies.
Property Sector – includes companies involved in land and property development.
Services Sector – includes companies involved in the following:
c. Information Technology
d. Transportation Services
e. Hotel and Leisure
g. Casino & Gaming
i. Diversified Services
Mining and Oil Sector – includes companies engaged in mineral extraction, oil exploration, extraction, and production.
According to CHARACTERISTICS
Though there is no formal definition or criteria to classify a stock according to its characteristics, analysts generally describe stocks as:
- Blue Chip stocks – are shares of well-established and financially sound companies that have demonstrated their ability to pay dividends in both good and bad times. They also exhibit more modest but dependable returns and are relatively of lower risk.
- Income stocks – are shares of those companies with good dividend payment history due to steady profits. Since they are stable, income stocks generally have a lower level of volatility.
- Growth stocks – also called “glamour stocks”, are shares of corporations whose earnings are expected to grow at an above-average rate relative to the market. A growth stock does not usually issue dividends as earnings are reinvested in capital projects.
- Defensive stocks – are shares that provide regular dividends and stable earnings, regardless of the overall condition of the stock market. Defensive stocks remain stable under difficult economic conditions. Generally, these are stocks of food, oil, and utilities companies, which are characterized by steady demand amidst hard times.
- Cyclical stocks – are those sensitive to business conditions or cycles strongly tied with the economy’s performance. These companies produce or offer services that are low in demand during slowdown and increase when business peaks.
- Speculative stocks – are those that rise quickly when economic growth is strong and falls rapidly when growth is slowing down. A speculative stock is considered very risky because of its volatility. It increases or decreases rapidly depending on the economic conditions.