Investment Center

Products: Basics of Investing: Stocks

Blue Chip stocks (also known as large cap stocks) are common stocks of nationally known companies that are considered highly valued with a long, solid history of profits and dividends for stockholders. While there's no guarantee these companies will perform well on the stock market, their strong track record may make them attractive to novice and conservative investors.

Mid-cap stocks are common stocks of companies that have a total market capitalization between certain predetermined levels, usually $1 to $5 billion. Levels may change over time.

Small-cap stocks are common stocks of a company that has a total market capitalization below a certain predetermined level, usually $1 billion or less. Levels may change over time. Small-cap stocks have a greater level of risk and a greater potential for higher return. Small companies have the potential to grow quickly, but they also could go bankrupt too.

Investing in either small or mid-sized companies may involve greater risk and potential reward than investing in more established, blue-chip companies.

Growth stocks are typically companies with the greatest potential for long-term growth. These could include companies in fast growing industries such as technology and health care or well-established companies. While growth stocks are subject to the daily ups and downs of the stock market, their long-term potential can be substantial.

Income stocks tend to represent the utility industry such as the local electric company. As their name implies, income stocks commonly generate annual income in the form of dividends, making them particularly attractive to the older set who may be seeking current income to enhance retirement cash flow.

International stocks reach into markets beyond U.S. borders. Investing internationally may help diversify your portfolio, but it's challenging to do as the world keeps getting smaller. Many overseas markets — especially European markets — respond to movements in U.S. markets. In addition, investing in foreign securities may pose risks not associated with staying home such as changes in exchange rates as well as different government regulations, economic conditions, and accounting standards.

In contrast to a growth stock, a value stock focuses on companies that are temporarily out of favor with the market — so their stock may be selling for less than their estimated worth. Usually, these are well established companies that investors have overlooked, companies experiencing a positive change or event, or companies in cyclical businesses. Although these companies generally have lower than average price to earnings they have the potential for better than expected earnings once they return to favor.