Peter Lynch, in his book “One Up on Wall Street”, separates stocks into 6 general categories. According to the author, these 6 categories cover all the significant distinctions an investor needs to make. Check out these 6 stock categories according to Peter Lynch.

6 stock categories according to Peter Lynch

Below are the categories described by Lynch.

Slow growers

Typically, slow-growing stocks are large, established companies that grow just above GDP. They usually start as a fast-growing stock and gradually slow down.

According to the author, electric utilities are a classic example of slow growers.

The author also mentions that slow growers grow from 2% to 4% per year.

Stalwarts

Stalwarts are well-known companies such as Coca-Cola, P&G, etc. They are not companies that grow a lot, but they grow more than slow growers.

According to the author, stalwarts grow their earnings between 10% and 12% per year.

The author buys these shares for a gain of 30% to 50%, then sells them and looks for another undervalued stalwart.

Fast growers

This is the author’s favorite type: new, small, aggressive ventures that grow 20% to 25% a year.

In this category, according to the author, fast-growing stocks can multiply your money by 10x, 40x, or even 200x.

But not everything is perfect: the smaller fast growers risk going out of business, and the bigger ones risk a rapid drop in value when they start to slow down.

Cyclicals

A cyclical company is a company whose sales and profits rise and fall in a regular, if not completely predictable, manner. A cyclical company expands and contracts over and over again.

According to the author, automobile, airline, tire, steel, and chemical companies are cyclical.

Turnarounds

Turnarounds are companies that have been battered and are in trouble. They are not slow growers, because they don’t grow, and they are not cyclicals that bounce back; they are potential fatalities.

According to the author, the best thing about successful turnarounds is that, of all the categories, their ups and downs are the least related to the general market.

Asset plays

An asset play is any company that owns something valuable that you know about, but that the market has overlooked. The asset can be as simple as a pile of cash.

But according to the author, companies do not remain forever in the same category.

Fast growers can have exciting lives and then run out of steam. They can’t keep double-digit growth forever, so they turn into slow growers, stalwarts, or even turnarounds.

According to the author, it is necessary to periodically reclassify companies.

Lynch also described the 13 attributes of the perfect company, which pairs well with these categories.

Happy investing!