Peter Lynch has a very effective way to categorize his stocks. As a successful fund manager holding shares of thousand over companies, it serves to follow his method. By categorizing the stocks, he can identify the companies that would potentially become big winners.
1) The Slow Growers
These are usually the large companies that have gone past the growing stage. Now, they are only growing slightly faster than the gross national product. The dividends given are generous and regular. You should not have many slow growers in your portfolio. This is because their potential earnings growth is small and earnings plays a large part in increasing the share price in the future.
2) The Stalwarts (Medium Growers)
Stalwarts are big and strong companies. Examples are Coca Cola, Kellog’s, Proctor and Gamble. Their earnings grow faster than that of the slow growers, but not too impressive. There is a chance to double your money, but you probably have to hold for a considerable period of time, and highly dependent on the price that you paid for the stocks. The advantage of Stalwarts is that they are recession proof. In fact, they rarely have a down quater to report. Peter Lynch looks for a potential gain of 30%-50% when he buys Stalwarts. Read more…