This is a follow up to a recent blog on The Financial Woman defining mid cap stocks. I promised to next write about the term “growth stocks” after my previous article about the movement of mid cap growth stocks. “Mid cap” and “growth” are typical investing lingo much like RSS and RAM are in the computer industry albeit a bit older.
The two major categories of stocks used when referring their valuation are growth or value. When an investor or money manager uses a growth strategy she is looking for the next big winners. These stocks are typically priced high relative to their current value and growth rate and their prices are trending up. Examples would be Crox or True Religion three years ago. The plan here is to jump on the bandwagon and ride it higher.
Value stocks on the other hand are companies whose price is cheap relative to their current valuation and growth potential. The price of these companies has usually fallen because of some catalyst that has left them out of favor with investors. The plan here is to buy the stock before their true potential is discovered usually once again as value companies tend to have been around longer than growth stocks in general.
I hope this clarifies the growth and value categories. These are expressions that are used to explain almost any investment strategy in the stock market. You will hear these terms used by financial advisors as well as mutual fund reviews and other publications and are therefore important to know as an educated investor.