Cyclical Stocks

Cyclical stocks are those that move according to the economic activity of the time. These stocks many times reach their highest and lowest points before the economy does.

When the economy goes into a recession these stocks experiment a low peak in its sales and earnings. During periods of expansion, these stocks grow substantially in these two areas.

Examples of cyclical stocks are those issued by capital equipment companies, home builders, automobile companies, and other sectors that have to do with economic growth. Before an expected fall in the economic activity in 1999 analysts downgraded stocks such as John Deere (DE), the farm equipment maker, and Cummins Engine (CHI), the diesel engine manufacturer; this meant a fall in stock prices as investors sold their corresponding stocks. This type of down-beaten stocks is considered as value stocks for patient investors that are willing to buy them and keep them until the next economy shift.

Cyclical stocks are liked by investors that like to negotiate actively buying and selling stocks at the rhythm of the economy’s ups and downs.