Which Types of Stocks Will Boost Your Profits!

The price of growth stocks is higher than its book value. Generally, during a booming stock market, the price of growth stocks is likely to rise rapidly.

In stock market investment, you can only achieve high profits by choosing the right company stocks and investing in them. Choosing the right stocks to invest is based on various factors such as one's age, risk-taking ability, financial goals, investment period, and preferences.

Generally, company stocks can be divided into 5 categories. Let's take a look at their details in detail.

1. Growth Stocks

Company stocks belonging to the growth stock category are those that have a high chance of growing rapidly. The income and profit rate of these companies increase significantly. Generally, these companies provide additional income during periods when the interest rate on debt is low. These types of stocks generally trade at a price higher than their book value.

Book Value refers to the net value of a company after deducting its total liabilities (debts) from its total assets. In short, it represents the approximate amount that all shareholders of a company would receive if it were sold.

Growth stocks are priced higher than their book value. In general, growth stocks tend to rise rapidly during bull markets. During bear markets, these stocks tend to fall further. Although they offer the potential for quick returns, they are also a high-risk investment. Therefore, growth stocks should only be considered by investors who are willing to take a high degree of risk.

2. Value Stocks

If a company's stock is trading at a lower price than its intrinsic value, it is called a value stock. The price of this value stock is close to its book value. Although these types of stocks do not grow rapidly, they do not fall rapidly during bear markets.

The stock price does not fall too much during major downturns because it is priced above its intrinsic value. Warren Buffett, one of the world's leading stock investors, usually invests more in value stocks in his investment mix. Those who want to invest in the stock markets without much risk can buy these types of stocks.

3. Dividend stocks

When a company makes a profit, it distributes a portion of that profit to stock investors in the name of dividends. This will be an additional income for stock investors. Some companies pay additional dividends. Generally, various public sector companies pay high dividends. There are many good companies that pay dividends of up to 8% per year on the share price. When investing in these stocks, it is possible to get an amount similar to the interest income received on a bank deposit. Some companies pay dividends every quarter, i.e. 4 times a year. When choosing and investing in such company stocks, it is possible to get continuous dividend income.

You have to pay tax on this dividend income according to your income brackets. 10% TDS will be deducted on dividend income of more than Rs. 10,000 in a financial year. Those who invest in stocks and want share value appreciation and dividend income can invest in these types of companies. ITC, Vedanta, Coal India, etc. continue to provide high dividends to investors.

4. Defensive Stocks

Some companies' products are in demand at all times. For example, the demand for food does not decrease even during periods like Corona, war between countries, and economic growth slowdown. Sectors like FMCG, pharma, electricity, and healthcare fall under these categories. These types of company stocks face only minor losses during stock market downturns. Therefore, those who want to invest safely in the stock markets can invest in these defensive stocks.

5. Cyclical Stocks

The price of these company shares will change according to the economic cycle. These types of stocks will experience a strong rise during a period when the economy is strong. On the contrary, these types of stocks are also likely to experience a sharp decline during a period of economic recession. Therefore, they are known as stocks that take a little more risk. However, when you calculate the economic cycle correctly and invest in these types of stocks, you can get additional profits. On the contrary, if you invest in these types of stocks at the wrong time, you will have to wait a long time to book profits. Examples of this type are company stocks related to the automobile and tourism sectors.

Those who are new to the stock market and those who want to take less risk can invest in value stocks, dividend stocks, and defensive stocks. Although these types of companies do not provide multi-bagger returns, they do not pose much risk to the investors' capital. These types of companies will provide good returns to investors in the long term.

On the contrary, those who have more experience in the stock markets and want to take more risk for additional profits can invest in growth and cyclical stocks. When you make the right predictions and invest in these types of corporate stocks, there is a possibility of getting multi-packer returns. Those who want to engage in short-term trading tend to trade more in these types of stocks due to high volatility.

Decide correctly which type of stock is right for you, invest and reap the profits..!

"Before investing, one should consult a SEBI-registered investment advisor and make informed decisions based on proper guidance. It is often more profitable to wait patiently for the right opportunities and to invest in small quantities when those opportunities arise."