Series 7 Classification of Stocks

Stock Classifications

• Blue-Chip Stocks: Represent major companies with a solid track record of steady earnings and consistent dividend payments. Considered low-risk investments.

• Growth Stocks: Issued by companies experiencing rapid growth in sales, earnings, and market share, typically outperforming the broader economy and industry benchmarks.

• Defensive Stocks: These stocks tend to maintain stable performance during economic downturns, often found in sectors like utilities and essential goods (e.g., pharmaceuticals, food).

• Income Stocks: Known for providing higher-than-average dividends in relation to their stock price, appealing to investors seeking regular income.

• Cyclical Stocks: Associated with companies whose earnings significantly rise and fall with the economic cycle, meaning performance is tied to economic conditions.

Stock Instruments

• American Depositary Receipts (ADRs): Financial instruments that allow investors to trade foreign stocks on US exchanges, facilitating international investments.

• Preferred Stock: A class of stock with no voting rights that guarantees a fixed dividend rate, representing the maximum return for preferred shareholders.

• Cumulative Preferred Stock: Ensures that any unpaid dividends must be paid to preferred shareholders before common stockholders receive dividends.

• Non-Cumulative Preferred Stock: Does not require companies to pay dividends in arrears, meaning missed dividend payments are lost to shareholders.

• Participating Preferred Stock: Offers potential for higher dividends if the company performs well, especially when common dividends surpass a set threshold.

• Callable Preferred Stock: Gives the issuing company the right to repurchase shares at a predetermined price in the future, providing strategic financial flexibility.

• Convertible Preferred Stock: Combines fixed income with potential for capital appreciation, allowing holders to convert into common shares at a set price.

Rights and Options

• Preemptive Rights: Rights granted to existing shareholders to purchase additional shares below market value, allowing them to maintain their ownership percentage during new issuance.

• Warrants: Long-term instruments issued with preferred stocks or bonds, enabling holders to buy common shares at a set price above current market value.

• Options: Contracts that provide the right to buy or sell an underlying asset within a specific timeframe, typically used for hedging, speculation, and income generation, with a term usually under nine months.