4th Feb 2010 by Daniel Cross, ChFC
Growth stocks are stocks with high P/E ratios and high growth prospects to justify the rating. They typically react very strongly to any kind of negative news or downturn and are volitile investments. The potential of growth stocks, however, outweighs these negatives as a ceiling has yet to really be established.
Value stocks are stocks with low P/E ratios. These are stocks that have been depressed by selling pressure or unrelated economic news even though their underlying fundamentals remain intact. They offer safer gains than growth stocks, but very rarely have the meteoric rise growth is known for. Care must be taken when searching for value stocks as some companies may have a low P/E ratio for legitimate business reasons and should be avoided.
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