Style and Class Characteristics for Stocks

Thomas BalisSeptember 29, 2016


At our recent seminar, a client asked me the question, ‘What exactly is the difference between a growth stock and a value stock?’  While expanding multiples in a sustained low interest rate environment have made some wistfully long-winded on this topic, I thought a review of the traditional meanings of style and size might be useful for our readers.

In general, value style stocks are companies that are thought to be undervalued in price; their intrinsic value exceeds their current market value.  They often have strong balance sheets and cashflows, and also may be regarded as undervalued as measured by low P/E ratios, price-to-book value ratios, and price-to-sales ratios. In many cases, they pay dividends. Companies like Johnson & Johnson or AT&T are considered value stocks.

On the other hand, growth style stocks are companies with above average earnings growth.   Stocks in this category often have higher P/E ratios, and the earnings of these firms are typically reinvested back into the business for additional growth.  Growth mutual funds have capital appreciation as their primary objective, and may have higher portfolio turnover and volatility.  Companies like Apple or Home Depot are considered growth stocks.

In the middle, you have Blend, which are those companies and funds in the middle with characteristics of both.  Often, portfolio managers in this space are looking for ‘growth at reasonable prices.’

Market capitalization is another important characteristic for stocks.  This is calculated by multiplying the number of shares outstanding times the price per share.  There are three general categories of market capitalization, and while there’s no ‘official’ definition for these categories, we use the following:

  • Large Cap Stock: Over $10 Billion
  • Mid Cap Stock: $2 Billion to $10 Billion
  • Small Cap Stock: Under $2 billion (Some also use the term Micro Cap for under $500 Million.)

Companies such as Morningstar regularly classify stocks by style and size, using a proprietary approach to score numerous data points for comparison within categories.   Some examples of where they classify certain well-known companies as of September 2016 follows:

Value Blend Growth
Large Cap Bank of America
Mid Cap Coach
Citizen’s Financial
Royal Caribbean
Domino’s Pizza
Trans Union
Under Armour
Small Cap Avon
Barnes & Noble
Ruby Tuesday
Callaway Golf
Rosetta Stone
Shake Shack


Here at HFA, our investment philosophy is founded upon strong diversification and our investment models include holdings in most or all of these categories, or sub-asset classes, as we call them. If you would like to learn more about these characteristics, please contact our office (610-651-2777) and a member of our investment department would be happy to discuss them with you!

Evensky, H., Horan, S., & Robinson, T. (2011). The New Wealth Management. Hoboken, NJ: John Wiley & Sons.
Morningstar: http://www.morningstar.com/InvGlossary/morningstar_style_box.aspx 
Hovde, J. (2010). Mutual Funds and Other Investments. The College for Financial Planning.