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What is Consumer Stock?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 10 September 2016
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Consumer stocks have to do with stock options that are issued by companies that produce goods that are meant for consumer consumption. Some examples of consumer stock would be any company that produced packaged foods or beverages, tobacco products, over the counter medications, or candies. Essentially, if the products produced by a company are meant to meet immediate and short-term needs of the consumer, the stock issued by that company can rightly be categorized as consumer stock.

There does seem to be a degree of gray area in relation to just what type of consumer goods have to be produced in order for the stock to be considered true consumer stock shares. Some analysts would consider the stock issued by clothing manufacturers to constitute consumer stock. Others argue that clothing is not usually intended to fulfill a short-term desire of the consumer, and thus does not meet the qualifications.

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Regardless of how wide or narrow the range of consumer goods that are found under the banner of consumer stock, the fact is many investors consider acquiring stocks of these types to be an excellent way to make money. There are in fact many instances of companies that introduced a new packaged food item that quickly became a consistent favorite of consumers over a broad spectrum of the buying public. Any investors who were able to see the potential in the product offering of the manufacturer and acquire shares of stock when the unit price was low could reap benefits over a period of many years.

When choosing to purchase shares of consumer stock, it is important for the investor to evaluate the growth potential for the company. Some of the indicators that the stock will perform well in both the short term and long term is the presence of one or more products that are firmly entrenched as the brand of choice for many consumers. At the same time, an investor would also want to determine if the company has successfully launched other products from time to time that also caught on with consumers.

A third factor would be determining if the products tended to be more of a need than a desire for the general populace. For example, if given the chance to purchase consumer stock in a company that produces a popular staple food item versus a popular candy company, the investor would want to consider the upcoming or ongoing economic climate. If the general economy is going through a prolonged phase where consumers exhibit less confidence and thus are purchasing less, the smart move may be to go with the consumer stock of the food manufacturer. At the same time, if the projections are for the economy to shift and consumer confidence is expected to increase, purchasing consumer stock in the candy company might be a good idea, since with consumer confidence comes a renewed interest in purchasing desired items as well as needs.

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