Stocks can be divided into two broad groups. Understanding the difference is key to risk management.
**Defensive stocks**
Defensive companies include firms that provide necessities. Examples: Procter & Gamble, Johnson & Johnson, Coca-Cola.
Benefits:
– Stable earnings even in recessions.
– Provide security during uncertainty.
Risks:
– May underperform in bull markets.
**Cyclical stocks**
Cyclical companies depend on economic growth. Examples: Ford, Toyota, Delta Airlines, Marriott Hotels.
Benefits:
– Opportunities in bull markets.
– Profit during expansions.
Risks:
– Revenue declines when consumers cut spending.
**Conclusion**
A smart portfolio mixes stability with growth. For example, uipath stock pairing Procter & Gamble with Ford allows investors to protect against downturns.
