The Six Categories of Stocks

Most people think all stocks are the same. They are not. If you treat a racehorse like a cow, you will be disappointed.

Peter Lynch, a man who liked to label the animals in the financial zoo, gave us six categories.

Slow Growers: These are old, tired companies that pay a fat dividend. They are like your grandfather’s armchair.
Stalwarts: Big, steady companies like Coca-Cola. They grow 10-12% a year. They won’t make you rich, but they won’t make you poor. They are safe but require a close look at The PEG Ratio before entry.
Fast Growers: These are the 20-25% growers. They are the tenbaggers. They are the exciting ones, provided you truly Invest in What You Know.
Cyclicals: Companies that rise and fall with the economy. Like airlines or steel. If you buy at the wrong time, it is a disaster.
Turnarounds: Companies that are nearly dead but have a heartbeat. If they survive, it is a miracle.
Asset Plays: Companies that own something valuable that Wall Street hasn’t noticed. Like real estate or a pile of cash.

Coca-Cola is a Stalwart. It is reliable. But it will never be a tenbagger again unless the entire planet starts drinking ten times more soda.

Smartin Roast: If we ran the Smartin App today, it would look at the PEG ratio and see it is a bit high for a company that is basically water and sugar. It’s a “Wait and See” situation.

Label the stock. Then decide what to do.