August 31, 2022
The Stock Market can be confusing and knowing how different types of companies are classified can help pare down some of that confusion. Most companies can be broken down into one of two categories: Grow or Value. Each focus on a different piece to return profit to their investors. Both have their place in a well-diversified portfolio.
Growth companies are companies that are believed to have and “edge”, potentially better their competition, maybe the first of their kind, perhaps the best product on the market in a new field. The focus of growth companies is outperforming the market. Generally, growth companies are in the tech or consumer discretionary sectors. Boiled down, growth stocks perform well when the overall economy is performing well. In addition, its widely believed that growth stocks both have more potential for return but also more potential for loss. Some examples of growth stocks would be Amazon or Tesla.
Value companies are companies that are believed to be “undervalued” meaning that analyst think the stock should be trading at a higher price than where it currently is. Value companies are widely considered more stable and focus on consistent profits rather than intense growth. Value companies generally make up the consumer staples side of the market. Household goods, or banks are typical value examples. These companies are less impacted by downturns in the general economy but are also less boosted by upturns. In essence, value stocks are considered “more stable” than growth stocks resulting in lower volatility and lower potential for return.
Many people ask which one is better. In truth, the answer depends on the investor and must be examined individually. With the current volatility, now is a great time to assess investments. If you have questions, feel free to reach out.
Graph Sources 8/28/2022 - https://get.ycharts.com/value-vs-growth-stocks-funds-etfs-investing/