The Difference Between Value and Growth Stocks (Part 1)

The stock market...such a taboo word these days.  It almost shares the same stigma as the words "foreclosure" and "credit".  However, it seems as if that particular word (stock market) is losing all of the negative connotations it once had.  After all, investor confidence is slowly starting to be restored as more and more people get comfortable with investing in the stock market.

There is a misconception in the whole reasoning behind investing in the stock market.  I mean after all, you will find that many "experts" state that the average stock market return is somewhere between 8 and  12% annually.  Well, as we have noticed from recent turn of events, it all depends on when you have started investing in the market.  I have had the unfortunate lesson of learning that timing is everything and if you started in 2007 (like I did), it was bad timing.

However, there is a silver lining to every cloud and many lessons have been learned since then.  Some stocks are at a very cheap price and fortunately I have been able to pick some up and receive some really outstanding returns.  Honestly, there was a time period recently where it did not matter what you bought, there was almost a definite positive return on the stock within a short period of time.   

Typically follows into one of two classifications.  The first classification is called "Growth".  Below is a definition of this class of stock from Investopedia:

A growth stock usually does not pay a dividend, as the company would prefer to reinvest retained earnings in capital projects. (Citation)

From my understanding, these particular stocks consist of companies that are typically smaller in size and have more potential to increase in share price.  Examples of these types of companies are:

• Google (GOOG)
• Cisco (CSCO)
• Intel (INTL)
• Apple (APPL)

As you can see from above, the stocks that are typically growth fall into the "Technology" sector and you can more than likely find them composing the Nasdaq Market.   Some events that help growth stocks to become lucrative are when these companies release some new product or services that causes a massive amount of demand for that company's product.  For example, after Apple released the IPod, as the amount of sales grew for this product, the stock price grew exponentially.

Growth companies are typically for those who believe that a company is going to grow through the release of some new product or some service that is high in demand without competition to take away the market share.  Stay tuned for the next article that is going to explain "value" stocks.