6 Types Stock categories BY PETER LYNCH
Peter Lynch is a famous fund manager who managed Magellan Fund at Fidelity Investments who gave 29.2% return over a period of 13 years; his assets under management increased from $18 million to $14 billion at the end of his tenure.
He is also the author of three famous investing books which according to me everyone should read
1. One up on Wall Street.
2. Learn to earn.
3. Betting the street.
Peter lynch was the person who coined the word multi-bagger. He used simple & profound method for picking stocks for his fund.
In this book ONE UP ON THE WALL STREET he described
6 types of stock or business to invest in stock market
Slow growers
This are the company who grow at very slow pace well below the market average and also provide a very low return. All fast growers eventually become slow growers. This stocks can provide good safety of capital, but can never provide above average return.
Stalwarts
This company are well grown established companies. They do not grow faster than but above or near the market average. But this companies give good protection in times on recession, as the earning are more predictable. They may not have more room for growth. This types of companies usually provide a good dividend yield & often buy-back their shares.
Fast Growers
This are the stocks which not only provide above average return, but they make one’s investment career.
This stock grows at 20-25% p.a., but they should not be the hot stock in the market which grows at 50% which probably cannot be sustainable. Grow of this types of company should be sustainable over a period of time.
The company should have good balance sheet & profits .Check whether there is a further room for growth. Proven track record of revenue, profit, cash flows, etc over a period of time. Most important thing check whether the growth rate is rising or falling.
Cyclical
They are the company which follow the economy. This companies grow when the economy is booming and fall when the economy goes into a recession. Timing is everything in this stock, buying it on the right time in the cycle is very important. Look for inventory levels in the industry and all other factors. Industries includes car industry, real estate, airlines, hospitality.
Turnaround
These are the companies which went bankruptcy and now are bought by new companies or taken over by new management with the backing of the creditors. Examine how the turnaround will actually happen. What are the future plans of the company for eg:- bank of America is a turnaround which gave 10 baggers return from last financials crisis before the COVID-19 crash.
Asset Play
They are the companies which are sitting in some things valuable that market don’t know about. It can be cash, assets, inventories, accounting losses, no. of users, real estates, etc.
->Know what the asset is
–> Have patience
-> Look for debt
-> Look for management are they destroying or creating value
-> Look for hidden assets.
Amazon.in (For India)
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