A:

A pure play is a company that invests its resources in only one line of business. As such, this type of stock has a performance that correlates highly to the performance of the stock's particular industry. For example, many electronic retailers or "e-tailers" are pure plays. All they do is sell one particular type of product over the internet. Therefore, if internet buying declines even slightly, these companies are negatively affected.

The performance of a pure play may also be highly affected by the type of investing style that targets it. For example, if a pure play's line of business is favored by growth investing, the company will do well during a bull market, when growth stocks tend to outperform the market. Conversely, during bear markets, when a value investing strategy is historically more profitable, a pure play associated with growth investing will do poorly.

Pure plays can be contrasted with companies that have many diverse lines of business and diverse sources of revenue. For example, Tyco International is a large conglomerate involved in almost everything you can think of, from home security to plastics and adhesives. Because of this diversity within its product line, Tyco's stock performance, unlike that of a pure play, is not affected by one or two concentrated factors, but by many different variables.

Due to the nature of pure plays and their dependence on one sector of the economy, one product, or one investing strategy, they are often accompanied by higher risk. On the other hand, this higher risk brings the potential for higher rewards because when conditions are in their favor, pure play stocks can flourish.

RELATED FAQS
  1. How can I invest in electronic retailing (e-tailing)? (AMZN, W)

    Learn about the different ways to invest in electronic retail. Amazon.com and Alibaba are the two dominant players in electronic ... Read Answer >>
  2. Why would a company have a subsidiary in a different sector from its main source ...

    Understand why a company would want to own a subsidiary in a different sector from its main source of business. Learn what ... Read Answer >>
  3. How does market share affect a company's stock performance?

    Discover how market share affects a company's performance. Market share is important in cyclical industries and not important ... Read Answer >>
Related Articles
  1. Investing

    5 Unique Pure Beta ETNs to Consider (SBV, BCM)

    Learn about five unique Barclays Bank iPath Pure Beta exchange-traded notes (ETNs) and whether these ETNs are suitable for your investment objectives.
  2. Investing

    Companies Affected Most by Low Oil Prices

    Low oil prices have affected many companies. Some consumers and producers who rely on oil as a key input benefit, while others do not.
  3. Investing

    Hedge Funds Hunt For Upside, Regardless Of The Market

    Hedge funds seek positive absolute returns, and engage in aggressive strategies to make this happen.
  4. Investing

    Introduction To Growth Investing

    There are principles and techniques that are applicable for many different types of investors and growth strategies.
  5. Investing

    Single Play E&P Operators

    There are several E&P companies that are putting the majority of capital budgets into single oil and gas plays.
  6. Investing

    What Are Factor Model ETFs?

    Given that stock picking is not generally effective, trackers that simply follow an index have become very popular. However, trackers have their disadvantages, too, so hybrid models between the ...
  7. Investing

    The Importance Of Corporate Transparency

    Clear and honest financial statements not only reflect value, they also help ensure it.
  8. Investing

    How To Invest In Commodities

    Find out which futures, options or funds will be your perfect commodity portfolio fit.
  9. Trading

    Best Ways To Find Profitable Intraday Trades

    This checklist can uncover patterns and setups that generate profitable short-term trading opportunities.
  10. Investing

    Johnson-Tyco Merger Is Pure Inversion

    American conglomerate Johnson Controls Inc (JCI) plans to merge with Ireland-based Tyco International (TYC) in an inversion deal worth $20 billion.
RELATED TERMS
  1. Speculative Risk

    A category of risk that, when undertaken, results in an uncertain ...
  2. Play

    A slang term that describes the positive aspects of an investment ...
  3. Pure Discount Instrument

    A type of security that pays no income until maturity; upon expiration, ...
  4. Conglomerate Merger

    A merger between firms that are involved in totally unrelated ...
  5. Volatility Swap

    A forward contract whose underlying is the volatility of a given ...
  6. Trading Halt

    A temporary suspension in the trading of a particular security ...
Hot Definitions
  1. Life Insurance

    A protection against the loss of income that would result if the insured passed away. The named beneficiary receives the ...
  2. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price ...
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  4. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
Trading Center