Peter Lynch says we can classify stocks into six different categories. Before you buy a stock you need to fit that stock into the following categories. This will give you an idea when to sell the stock.
- Slow Growers Large and Ageing Companies who started of as fast growers but ended up as Slow growers in a no growth industry. Mostly people hold these fixed income.
- Stalwarts These leaders in a growing dynamic industries but since thier market cap is so huge that you would expect mostly to get max 50% rise out of them. Eg- CSCO, INTC and MSFT
- Fast Growers Small agrresive new enterprises who grow at 20-25% per year.
- Cyclicals These are companies whose sales and earnings grow or contract based on the economy hence called cyclical. Eg- Airlines, Autos
- Turn Arounds Companies which are depressed battered and about to go into Chapter 11. They are actually no-growers which burn cash.
- Asset Plays Company that is sitting on something valuable which you know about but Walstreet has over looked.