Which term describes stocks of companies whose earnings grow faster than the general market?

• A. Cyclical
• B. Defensive
• C. Income
• D. Growth

Answer: (D)

Growth stocks describe companies whose earnings are expected to grow faster than the overall market. Investors buy these shares in anticipation of rising profits leading to higher stock prices, often prioritizing capital appreciation over current income since these firms typically reinvest earnings rather than pay large dividends. Because of the rapid growth expectation, these stocks often carry higher valuations, like elevated price–to–earnings ratios, and can be more volatile as growth prospects change. In contrast, cyclical stocks swing with the economy, defensive stocks provide steadier earnings and dividends during downturns, and income stocks focus on regular dividend payments. So the term that fits stocks with earnings growth outpacing the market is growth.