1. Size of the company (Market capitalization)

The company's market capitalization is the total number of shares X the current market value of shares. Based on the market capitalization, the company can be divided into Large-cap, midcap & small-cap.

Large-cap: These are well-established sector leaders with a market cap of 20,000 crores or more. These stocks are less volatile and, therefore, less risky as compared to small & mid-caps. Example – Reliance, TCS

Mid-cap: These stocks have a market cap of 5,000 crores + but less than 20,000 crores. Good mid-cap stocks have the potential to become large-cap. These stocks are more volatile as compared to large-cap stocks. Example – Dr.Lalpath Labs, Tata chemicals

Small-cap: These are stocks with a market cap of less than 5,000 crores. These companies or stocks have significant growth potential, but this adds up to the volatility in the stocks. Examples – CDSL, Just Dial

2. Ownership

Preferred stocks: Preferred stocks offer a fixed amount of dividends every year. The price of preferred stock is not as volatile as common stock. At the time of company liquidation, the preferred stockholders are paid before common stock.

Common stock: Common stockholders have voting rights. Although there is no fixed dividend, common stockholders get a preference for distributing the company's surplus funds. As a result, common stock gives higher returns than any other type of share in the long term.

Hybrid stocks: These are the preferred shares that can be converted into common stock. The convertible preferred shares may or may not have voting rights.

Stocks with embedded derivative option:

Stocks with embedded derivative option means the stocks are 'callable' or 'putable.' The company can buy back the callable stocks for a specific price & at a particular time. 'Putable' stock offers its holders to sell the stock to the company for a specific price & time.

3. Dividend payouts:

Income stocks: Income stocks are stocks which distributes dividend regularly & are known as dividend yield stocks. Higher dividend results in higher income, therefore the name income stocks.

Income stocks provide stable returns & therefore are less risky. Example: ITC, Bajaj Auto, Hindustan zinc, etc.

Growth stocks: These are the stocks that do not pay dividends regularly; rather, they reinvest the profits into the business for innovation, expansion, research, etc., which in turn boosts the company growth. In these stocks, the investors earn through capital appreciation. Example: Bajaj Finserv, TCS, Reliance, Infosys,etc.

4. Fundamentals:

Overvalued shares: When the share price does not justify the share's earnings, the stock is said to be overvalued. In simple words, you pay more than you should for the given % of earnings.

Undervalued shares: When the share is trading at a price below its valuation, it is undervalued. These shares provide good opportunities to investors to enter the stock as they believe that the share is undervalued & has good growth potential.

5. The risk involved:

The share prices are affected by several factors & therefore, investment in the market is subject to market risks. Stocks with higher risk provide higher returns, while low-risk stocks generate low returns.

High Beta Stocks: The beta is a risk indicator of the stock. It indicates the price behavior of share vis-à-vis market movement. The beta value can be positive or negative. The positive beta represents that the share price move along with the market movement & the negative beta means the share price moves in the opposite direction of market movement.

The higher the beta, the higher is the risk involved.

Blue Chip stocks: These are large-cap companies that are well-established & provide stable returns. The risk involved in these companies is less as the companies have lower liabilities.

6. Price trends:

The company's segregation in this category depends upon the company's type of business.

Defensive stocks: If the company is into a business in which the sales or the revenue generation is not affected by economic conditions, the stock is defensive. This is because an investment in this company will save your portfolio as these shares will perform well even in bad market conditions.

For example, the FMCG sector companies are defensive stocks as people consume their products irrespective of the market conditions.

Cyclical stocks: These are the stocks in which business is highly affected by economic conditions. These stocks are highly volatile, which grow rapidly during the boom, but the growth slows down as the economy slows down.

Example: Airline industry & automobile industry stocks are still in the recovery mode after the COVID pandemic.