A company's stock is generally categorized into one of three different types. Namely: growth, value, or income.
Investors who want a passive income source will usually go with solid blue-chip stocks like Telstra Corporation Ltd (ASX: TLS), whereas those who favour capital gains will likely have their crosshairs fixed on 'growth' stocks such as Slater & Gordon Limited (ASX: SGH). Finally I'm sure value investors will be running their eyes over out-of-favour stock picks such as Coca-Cola Amatil Ltd (ASX: CCL).
When determining what type of stock to buy, there's no hard and fast rules and the characteristics of each are not mutually exclusive. So while Telstra may appear an excellent investment for income purposes, having returned over 40% in dividends over the past five years, it has also experienced share price appreciation to the tune of 67% in that period.
Telstra is a favourite amongst income investors and since interest rates started falling in November 2011, its stock price has rallied over 72%. At current prices however it appears fully valued, given its outlook for only modest earnings and dividend growth.
Slater & Gordon has been a huge success in recent years, providing long-term investors with market-thumping capital gains. The group has now begun an expansion into the UK, where the opportunity for consolidation appears to be available for the taking. I think it could prove to be a great stock to buy and hold for many years.
Lastly, the investment case for Coca-Cola Amatil (CCA) is an interesting one. I think value investors would be looking at CCA's recent share price drop as a solid buying opportunity because its new leadership, competitive advantages and scale will help drive the group's operating margins higher over time. However some investors hold concerns over whether or not fizzy drinks will continue to be in high demand in the future. In addition it's unlikely the competitive pressures the group is facing will fade away anytime soon.
Our #1 dividend stock idea – Yours FREE!
These three stocks offer something to suit every type of investor and I'd love to hold each stock in my portfolio, at the right price.
