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Stocks are one of the most common ways people get invested. And researching them can help you invest your money wisely.
In this video, we’ll break down common stock types, how to find stocks to research, and the tools investors use to evaluate them.
Before we get into researching, it helps to understand that stocks are often grouped in a few different ways: by company size, by investment style, and by the type of yield.
First: size. For example, there’s small- and large-cap stocks. 'Cap,' or market capitalization, is the total number of a company’s shares multiplied by its share price. It’s one way of measuring a company's total value.
Small caps are typically companies in earlier stages of growth, which can lead to higher stock price volatility. Due to their size and more-focused business models, they tend to be more sensitive to interest-rate changes and broader economic trends.
Large caps are usually established, financially sound companies. Historically, these stocks have had lower volatility compared to small caps and more analyst research behind them.
Keep in mind that a company's market cap alone doesn't determine its performance. Many large caps can still have significant growth potential, while many small caps may offer stability and lower risk.
The next group is investment style: growth and value stocks. Growth stocks are shares of companies expected to grow their sales and earnings at a faster rate than the overall market.
Let’s imagine there’s a tech startup called Robotics Generation. They build robots for warehouse inventory management.
Their stock might be classified as growth if it had strong sales and earnings thanks to a high demand for robotics.
Growth companies often reinvest their profits back into the business to fuel expansion. This may be the reason why investors are often willing to pay a premium for them.
This focus on growth can also make it riskier. If Robotics Generation doesn't meet expectations—say their robots are more like clunkers—its stock price may drop.
Value stocks, on the other hand, are shares that trade at a lower price compared to the company's financial performance.
Often, these are established companies that may be in an industry that’s mature or temporarily out of favor.
Investors may buy these stocks believing they’re undervalued. The hope is that the market will eventually recognize their true worth, causing the stock price to rise.
The risk is that the stock may be undervalued for a reason, and the market's perception won’t change.
Finally, stocks can be grouped by what they yield, or what you’re getting from them. Income stocks focus on giving regular payouts to shareholders, called dividends, rather than emphasizing price growth.
Other stock types can pay dividends too. But income stockholders can potentially get more consistent payouts as the company shares more of its earnings with them. This might be worth considering if your goal is income.
But one thing to note: dividends aren’t guaranteed and companies can cancel them entirely at any time.
Now that you know some of the different types of stocks, the next step is figuring out which ones to research.
There are a lot of tools you can use to do that, from search engines to stock screeners. Screeners work a lot like shopping online, using filters to help narrow down thousands of choices based on what matters to you.
Say you want to invest in a tech company, but you don’t know which one. Let’s search for the tech sector, and sort by earnings.
Oh look, it’s Robotics Generation.
Now that we found a stock, it’s time to do a deep dive. I’m going to pass things off to Stephanie to walk us through it.
Thanks, Dessa! Before buying any stock, there are three things you should do first: research the value of the stock price, the company's financial health, and its growth prospects. Let’s look at the share price.
The share price is how much it costs to buy a single share. If you’re investing at Fidelity, you can buy fractions of shares with as little as $1.
Next, you’ll see the price chart, which shows how the stock has performed from days to even decades ago.
Always remember that a stock’s past performance doesn’t guarantee future results. You need to look at the whole picture. Which is why a lot of investors read the news.
It looks like a major report just came out that Robotics Generation’s latest line of robots, the BZZ-e-Bee, is being recalled. There’s a good chance that news could scare investors and cause the stock price to go down.
News about the industry is also worth a look. This headline here says that there’s a growing demand for robotics, which could mean the stock may grow.
But headlines aren’t the whole story. By the time everyday investors read the news, that info may already be factored into the stock's price. All the more reason to keep researching and focus on the big picture.
Tools like screeners also may have the ability to compare a stock to its competitors.
Let’s look at how Robotics Generation stacks up against its (imaginary) competitor, Qualified Robotics Scientific.
While the rival company has performed better over the past year, we can see analysts are overall more optimistic about Robotics Generation.
Analysts are independent experts who research companies and publish stock ratings.
Their views are summarized here as buy, neutral, or sell, but you can also dive deeper into their reasoning.
Some dramatic price changes can cause analysts to change their ratings. Other times they’re already baked into their scores.
Consider using their research as another input in your decision-making process.
Remember that BZZ-e-Bee recall? Even with that news, this prominent analyst still rates the stock as a buy since the demand for robots remains strong.
You can see how people are feeling about more specific aspects of the stock in the Sentiment tab.
You can look at things like whether investors think a stock is over- or under-valued, how financially healthy the company appears, and even what’s being said about it on social media. Back to you, Dessa.
So that’s how to get started researching stocks. Fidelity.com has a ton more stock research tools we didn’t cover in today’s video, but you should definitely check them out for yourself. Till next time investors!