Growth or Value?

Q

Should I invest in “growth stocks” or “value stocks” — which is better? — G.G., Portland, Oregon

A

You don’t have to choose one or the other — some of the best stocks to invest in are both. Growth stocks are tied to companies that are increasing their revenue and earnings relatively rapidly, while value stocks are tied to companies with market values significantly below what they seem to really be worth. If you find a company that’s growing at a solid clip and it seems to be undervalued, that’s a very appealing proposition, offering a good chance of stock price appreciation. It’s best, overall, though, to favor undervalued stocks. Even if they grow slowly, they offer a margin of safety by not being overpriced.

Q

Are secondary offerings and subsequent offerings the same thing? — K.F., Muskegon, Michigan

A

Subsequent offerings are often called secondary offerings, but the two events are different. When a company “goes public,” it issues stock in itself via an initial public offering (IPO) on the open market. It’s common for insiders or large investors to keep sizable ownership stakes in the company, with only a portion of shares sold in the IPO. If these big investors later sell some of their shares to the public, that’s a secondary offering, and the investors collect the sales proceeds, not the company. A subsequent (or follow-on) offering happens if the company wants or needs to raise more money later (perhaps to pay down debt, finance operations or buy another company). It will create and sell new shares, increasing the number of shares outstanding and diluting the value of existing shares. That’s not great for existing shareholders. Want more information about stocks? Send us an email to foolnews@fool.com.