The Motley Fool: The difference between NYSE and the Nasdaq

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The Nasdaq vs. the NYSE

Q: I read that PepsiCo left the New York Stock Exchange (NYSE) and is now listed and trading on the Nasdaq stock-market index. Why would a company do that?

A: It makes little difference to us investors buying and selling shares of NYSE and Nasdaq companies, but there can be meaningful differences for the companies. Two common considerations are prestige and cost.

The NYSE dates back to 1792 and is more prestigious. The Nasdaq was born in 1971 as a computerized trading system, while the NYSE, long relying on people to execute its trading, now uses both humans and electronics

It generally costs more to be listed on the NYSE, and that’s where you’ll find many old, established blue-chip companies, such as Coca-Cola, Disney and Boeing. The Nasdaq is home to many tech-heavy and faster-growing businesses, including large ones such as Amazon.com, Microsoft, Facebook and Apple.

Each market has its own rules and requirements for listed companies, with Nasdaq being less demanding. Most companies debuting on the market via an initial public offering (IPO) do so on the Nasdaq.

Q: Last year I noticed that two companies in the same industry had similar stock prices. One has seen its price rise, while the other has fallen. Can you explain why?

A: The similar prices were pretty much a coincidence. No two companies are exactly the same, even if they’re in the same business. Each will have its own strengths, weaknesses, risks and growth prospects. The stock of each might be overvalued or undervalued, and it might be about to rise or fall. Much depends on how investors view the company, and what they expect of it.

MY DUMBEST INVESTMENT

Patience pays

Dear Fool: Selling Netflix back in 2010 is definitely the costliest mistake I’ve made, even though it was a four-bagger at the time, quadrupling the value of my investment.

I sold after holding it for about three years. I thought I did the right thing after I saw it plummet, but then it shot straight back up. I could be sitting on about a 25-bagger, if I’d just held on. Lesson learned — have patience.

The Fool responds: It may sound trite, but patience really is powerful in investing.

Netflix’s history has been a bit volatile. In 2011 the company announced plans to split its DVD-by-mail business from its video-streaming business, naming the DVD business “Qwikster.” The idea was met with ridicule and was retracted not long after.

The episode helped push Netflix’s stock down some 75 percent in just about three months. Certainly, anyone who sold before that would be relieved.

It’s important to keep the big picture in mind, though. At the time, did it seem that Netflix was doomed? Its revenue topped $2 billion annually and it was still growing. The stock recovered and kept growing, too.

Today, bears worry about competition from Amazon Prime and others, including Disney’s recent deal to buy 21st Century Fox’s movie and TV assets, but bulls point to Netflix’s aggressive investments in original content as well as its global growth.

THE MOTLEY FOOL

Robotic growth

One of the staples of sci-fi stories is robots. A key company helping make everyday robotics a reality, and managing to put up some substantial growth numbers while it does so, is iRobot (Nasdaq: IRBT). Its recent third-quarter results, for example, featured 22 percent year-over-year revenue growth.

iRobot is the current market leader in the emerging consumer robot industry, with more than 20 million robots sold worldwide. (The company sells its products in the U.S., Japan, and Europe, the Middle East, and Africa (EMEA).)

Though iRobot offers a variety of robots that do everything from clean your gutters and pool to mop your floor, the bulk of its revenue still comes from its Roomba robotic vacuums. In a recent interview with MIT Technology Review, iRobot co-founder and CEO Colin Angle noted that his company has “talked about lawn mowing, laundry folding, loading and emptying dishwashers, and bathroom cleaning as things of interest to us,” adding that robots will “eventually handle all of this routine maintenance.”

Market penetration of consumer vacuum robots is growing, but it’s still quite low in the U.S. and is even lower abroad. This leaves iRobot plenty of room to grow — and generate big returns for shareholders. With its long history of growth, profitability and innovation, iRobot is a must-consider growth stock. (The Motley Fool owns shares of and has recommended iRobot.)

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