Six Different Types of Stock in Indian Market according to Peter Lynch:
Peter Lynch is the renowned American investor and ex-manager of Magellan fund at Fidelity investment. He is famous for his averaged 29.2% annual return for the duration of 13 years. The prodigal mutual fund manager divided the stocks into six categories during his investment experience. Namely: slow growers, stalwarts, fast growers, cyclical, asset plays, and turnarounds.
We are also going to follow lynch’s path. Here are the categories with the examples of stocks from Indian markets so that they are easier to understand.
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Six Different Types of Stock in Indian Market according to Peter Lynch:
1. Slow growers / Sluggards
Slow growers, which originally once were fast growers, can be identified easily with a slow growth rate i.e. a low upward slope of earnings growth and stock price. The growth is usually between 2-5%. They can also be identified by the size and generosity of their dividend.
Peter Lynch did not like to spend time on these ‘sluggards’ and his portfolio consisted of very less percentage of slow growers. According to him, the only reason to buy these stocks is their dividends. They generally give a very good dividend (about 4-6%) and are a good asset during the recession as its very unlikely for their stock to feel too hard.
Example: Reliance, Power Grid Corp
2. The Stalwarts
They are the second type of categories of the Six Different Types of Stock in Indian Market according to Peter Lynch.
These stocks have average growth rate and are usually large companies that have earnings growth in the 10-12 percent range – higher than the slow growers.
According to Peter lynch, you can get a good return from these stocks if you wait for a long time. They generally end up from two-baggers (two times your buying price) to four-baggers. It’s good to have few stalwarts in your portfolio.
Example: HPCL, Bajaj Auto, Mahindra & Mahindra
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3. The fast growers
The fast growers are everyone’s first choice. These stocks are generally small aggressive new enterprises and they grow at an impressive rate of 20-25% per year. But one should be open-eyed when they own a fast grower. There is a great likelihood for the fast growers to get hammered if they run out of steam and become a slow grower.
Peter lynch’s portfolio consisted mainly of the fast growers. He looks for fast growers with good balance sheets and which have good profitability. This category is also the lynch’s favorite among the Six Different Types of Stock in Indian Market according to Peter Lynch
Example: MRF, Eicher Motors, axis bank, Infosys, Maruti
4. The Cyclicals
The Cyclical can be distinguished from the fast growers as the cyclical keep on expanding and contracting and again repeating the same cycle (while the fast growers keep on expanding). They tend to flourish when coming out of a recession into a vigorous economy.
Automobiles, Metals, Chemicals, Tyres etc are the examples of the cyclical. Their charts tend to be very up and down over time. It is advised to owning the cyclical only on the right part of the cycle. That is when they are expanding. Sometimes, it even takes them years before they perform. Timing is everything and you need to be able to detect the early signs that business is falling off or picking up.
Example: GAIL, Coal India, SBI
5. The turnarounds
The turnarounds are identified by Lynch as ‘no growers’ rather than ‘slow growers’. They are potential fatalities that have been badly hammered by the market for one or more of a variety of reasons. But they can make up lost ground very quickly.
Peter lynch identifies different types of turnarounds in his book ‘One up on the Wall Street’ and admits to being burnt by a number of them but suggests that the occasional success can be exciting and rewarding.
Example: Tata Steel, Phoenix Mills etc
6. The Asset Plays
This is the last category from the Six Different Types of Stock in Indian Market according to Peter Lynch.
The asset plays are those stocks whose stocks are greatly undervalued and those stocks that have assets overlooked by the market. These assets may be simply cash that the company is holding but which is not valued when there has been a general market downturn. The cash may be worth more than the market capitalization of the company.
Many of the PSUs are key asset plays because of the real estate property they are holding. For example- State bank of India. SBI has over 24,000 branches all over India. A similar example is ONGC.
Peter lynch understands the worth of the asset plays. He suggests owning few of these stocks in your portfolio as they are most likely to give you a good return in the future. The only significant thing in these stocks is to carefully find these stocks and right estimate for the worth of the assets. If you are able to do it, own that stock.
Try it out yourself!
So, these are the six different types of Stock in Indian Market according to Peter Lynch. If you followed the post, you can also easily categorize any stock in the six types given above. So, go on, play around different stocks and classify them accordingly to above categories.
NOTE: The research on Six Different Types of Stock in Indian Market according to Peter Lynch is derived from his Book ONE UP ON WALL STREET.
Further, please comment below with the name of stocks that fits the above categories. I will really appreciate it and it will be very beneficial for the other post viewers.
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Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
