Thursday, 29 December 2011

Stock Types

Microsoft MSFT and Microtest MTST.  They are both technology companies.  Both have "micro" in their names. But that's where the similarities end.

Microsoft is the most successful company of the 1990s with a market value of $450 billion at the end of 1999.

Microtest is a struggling produce of hand-held scanners, is worth a piddling $30 million.

These are two technology companies, two very different stocks.

Inside any sector - whether it is technology or utilities - you will find companies as different as Microsoft and Microtest.

To highlight fundamental differences between companies, examine each company's historical record, growth rates, cash flows and other financial data.

Based on these fundamental differences, assign it to one of eight groups.  These stock types are:

  1. Speculative Growth
  2. Aggressive Growth
  3. Classic Growth
  4. Slow Growth
  5. High Yield
  6. Cyclicals
  7. Hard Assets
  8. Distressed.

These stock types address the question:   What kind of company is this?

What about Microsoft and Microtest?

  • Bill Gates' company lands in our aggressive-growth stock type, the home of the fastest-growing companies.
  • Microtest doesn't fare so well.  Because of declining cash flows and negative earnings, it is in the distressed group.  Hawking handheld cable scanners hasn't generated much growth.


Life Cycle of A Successful Company

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