Types of Stocks Explained

There are a lot of different types of stocks out there. As a new investor – or even a seasoned investor – you may find this confusing.

Don’t worry, this article has got you covered. Here are the different types of stocks explained. 

Why are there different types of stocks?

Stocks are separated into different types to make it simpler. 

The idea is to group similar stocks together so investors can pick the ones that fit their strategy best. Rather than grouping stocks by market sectors – like healthcare, technology, or financial services – stocks can be grouped by how they behave. This could be by whether or not a company pays dividends or its market cap size, for example.

This is designed to make it easier for investors to understand how a stock might behave once they’ve invested in it. There are a lot of different types of stocks listed on the stock market, so we have broken it down to make it less confusing for you.

What are the main types of stocks?

Here are the main types of stocks you’ll find on the stock market:

• Common stock
• Preferred stock
• Large-cap stocks
• Mid-cap stocks
• Small-cap stocks
• Growth stocks
• Value stocks
• IPO stocks
• Dividend stocks
• Non-dividend stocks
• Cyclical stocks 
• Non-cyclical stocks
• Income stocks
• Domestic stocks
• International stocks
• ESG stocks
• Penny stocks

Common stock and preferred stock

The first types of stock we’ll cover are common stock and preferred stock. 

Common and preferred stock are terms used to describe the rights you’ll get as a shareholder. A lot of companies will have both common and preferred stock, but both options won’t necessarily be available to you. For example, some companies only allow directors to have common stock. 

The main difference between common and preferred stock is that common stock comes with voting rights for shareholders, while preferred stocks don’t.

However, a preferred shareholder will have priority over a company’s income. This means they get paid dividends before common stock shareholders.

Large, mid, small, and micro cap

Large, mid, small, and micro cap all refer to the size of a company.

Market capitalisation – or market cap – is the total market value of a company’s outstanding shares of stock.

Market capitalization is normally used by investors and professionals to work out a company’s size. They find it is a better indication than sales or total asset figures.

The table below shows the size of the different categories of market cap.

Type of stock	Market capitalisation range (£)
Large cap	7.9bn+
Mid cap	1.58bn to 7.9bn
Small cap	237m to 1.58bn
Micro cap	39.5m to 237m

Popular large-cap stocks include Shell (LSE: SHEL) and AstraZeneca (LSE: AZN).

Here are some small- and micro-cap stocks: Somero Enterprises (LSE: SOM) and Tribal Group (LSE: TRB).

RELATED: Types of Stocks Explained

Growth and value stocks

Growth stocks are those companies that are considered to have the potential to outperform the overall market over time because of their future potential. Essentially, a growth stock is considered likely to increase in value as the company grows over time. 

Value stocks are companies that are currently trading below what they are really worth and are expected to provide a superior return.

Aston Martin (LSE:AML) is a popular growth stock. Meanwhile, a popular value stock is Tesco (LSE: TSCO).

IPO stocks

When a private company first sells shares of stock to the public, this process is known as an initial public offering (IPO). In essence, an IPO means that a company’s ownership is transitioning from private ownership to public ownership.

The stock price of IPO stocks can change a lot as it adapts to being listed on the stock exchange.

Dividend and non-dividend stocks

The definition of these types of stocks is simple. Either they pay out dividends or they don’t.

A dividend is an amount of money paid at regular intervals by a company to its shareholders from its profits. Dividends are attractive because they give investors an income without them having to make any trades. 

Investors tend to receive a dividend payment either annually, half yearly or quarterly.

Imperial Brands (LSE: IMB) is one of the highest paying dividend stocks in the UK.

Income stocks

An income stock is essentially one that can provide you a steady income. 

To achieve this, income stocks pay out regular and increasing dividends. This can be appealing to investors as they can be confident they’ll get some income from the stock even if markets don’t perform well.

While income stocks are very similar to dividend stocks, they do differ slightly. Their income is not solely limited to dividends. Income stocks are also likely to increase in value and therefore provide an income that way too.

Examples of income stocks are Legal & General (LSE: LGEN) and Lloyds (LSE: LLOY). 

Cyclical and non-cyclical stocks

The defining feature of cyclical stocks is that their price is affected by macroeconomic or systematic changes in the economy as a whole, not just their specific sector or company. For example, the interest rate may affect the share price of cyclical stocks. 

Therefore, cyclical stocks are known for following the cycles of an economy from growth, to peak, recession, and finally onto recovery. 

This means that when the economy is growing or peaking these stocks are very appealing. Of course, when a recession is looming, investors may prefer to avoid these stocks.

Conversely, non-cyclical stocks are ones whose prices are not affected by macroeconomic events. These will likely be more popular when the economy is not performing well. 

Compass Group (LSE: CPG) is an example of a cyclical stock. An example of a non-cyclical stock is Coca-Cola (LSE:CCH).

Domestic vs international stocks

For UK investors, domestic stocks are those of companies based in the UK, while international stocks are those from companies based outside the US.

UK investors are often particularly interested in US stocks.

One popular UK domestic stock is Barclays (LSE: BARC). 

While a common international stock is Apple (NASDAQ: AAPL). 

ESG stocks

These types of stocks are growing in popularity right now. As investors become more environmentally conscious and want to make an impact with their money, ESG (environmental, social, and governance) considerations are becoming more important.

Examples of well-known ESG stocks are SSE (LSE: SSE) and Greencoat UK Wind (LSE: UKW).

Penny stocks

Penny stocks are stocks with a price below £1. 

Typically, a penny stock is priced low because they are considered to be very high-risk assets.

Penny stocks tend to be shares in companies that are unknown, very small, or currently not very successful.

Which types of stocks are right for you?

The stock market is varied and there are many different types of stocks. It’s usually recommended to have a diversified portfolio, so you may well want to mix and match. Sticking to just one type of stock may not be the best investment strategy.