Cyclical, Discretionary & Durable Stocks Easily Explained

Cyclical investing can be tricky to understand! But not with our guide to cyclical stock investing.

Cyclical, non-cyclical, discretionary, and non-discretionary stocks, plus consumer durable and non-durable stocks, are all confusing. Understand what stocks are best in what economic conditions.

Cyclical, Discretionary & Durable Stocks Easily Explained
Cyclical, Discretionary & Durable Stocks Easily Explained

What are cyclical stocks?

Cyclical stocks are stocks that tend to fluctuate with the ups and downs of the economy. When the economy is doing well, cyclical stocks will typically perform well. However, cyclical stocks will often be some of the first to feel the effects when the economy takes a turn for the worse—because of this, investing in cyclical stocks can be a bit of a gamble. You could see significant gains if you timed your investment right. But if you invested just before a recession, you could see some big losses.

Definition of a cyclical stock

A cyclical stock is a type of stock that typically performs well when the economy is doing well but falls when the economy declines. Cyclical stocks are often associated with companies that provide long-lasting, durable goods or services, typically automakers, retailers, and airlines.

Cyclical Stocks Explained

Economies and stock markets move in cycles of growth and decline. When economies grow, people have more money to spend buying durable (long-lasting) goods like cars and homes. Cyclical stocks are those companies that produce big-ticket items that sell well when the economy is good but suffer when the economy declines.

Cyclical Stock Key Takeaways.

  • Cyclical stocks are those that grow fast during economic booms.
  • Cyclical stocks are also known as consumer durable goods or consumer discretionary.
  • When economies decline, people will buy fewer durable/discretionary goods.
  • Consumer discretionary means that the products are not essential to life but are more of a life upgrade or luxury purchase.
  • Cyclical stocks are homemakers, motor companies, airlines, and producers of luxury goods.

How to find cyclical stocks with Stock Rover

It is easy to get a list of consumer cyclical stocks by following this process:

  1. Register with Stock Rover for free
  2. Select All -> World ->Sectors -> Consumer Cyclical
  3. Review the list of cyclical industries and stocks.
How to find cyclical stocks with Stock Rover
How to find cyclical stocks with Stock Rover

How to find cyclical stocks with TradingView

  1. Try TradingView for free
  2. Select Stock Screener -> Filter -> Sector -> Consumer Durables
  3. Review the list of cyclical industries and stocks.
How to find cyclical stocks with TradingView
How to find cyclical stocks with TradingView

Buy cyclical stocks at the end of a recession

To maximize returns, it is best to buy cyclical stocks like airlines, automakers, and real estate investment trusts (REITs) when the economy starts to grow again. This means buying cyclical stocks at the end of a recession because they will be undervalued, cheap, and usually experience market-beating performance.

What are non-cyclical stocks?

Non-cyclical stocks are stocks that tend to do well during all economic conditions. They are often considered safer investments, as they are less volatile than cyclical stocks. Non-cyclical stocks can be a good option for investors who want to protect their portfolios from losses during recessions and periods of economic volatility. Some good examples of non-cyclical stocks include consumer goods companies, healthcare providers, and telecommunications companies.

Non-cyclical stock explained

Non-cyclical stocks are those companies producing goods that people always need regardless of whether the economy is booming or declining; people will always buy non-discretionary/non-durable goods like food, drink, and basic clothing.

Non-cyclical Stock Key takeaways

  • Non-cyclical stocks perform well in all market conditions.
  • Non-cyclical stocks are also known as consumer non-durable goods or consumer non-discretionary.
  • Non-durable means the products do not last long, such as food, beverages, gasoline, and basic apparel.
  • Consumer non-discretionary means that people do not have a choice; they must buy food, water, electricity, and medicine.
  • Non-cyclical stocks are food, beverage, and utility companies.

Cyclical, Durable & Discretionary Stock Cheat Sheet

Stock Type Sector Industry Performance
Cyclical / discretionary stocks Consumer durable
  • Apparel
  • Motor Vehicles
  • Home Building
  • Recreation
  • Airlines
Rise & Fall With Economy
Non-cyclical / non-discretionary Consumer non-durable
  • Food
  • Beverage
  • Footwear
Beat the market in all conditions
Counter-cyclical Healthcare/Defence
  • Discount Retailers
  • Prison Services
  • Security
  • Healthcare
Out-perform in economic decline

A list of consumer cyclical stocks

  • Automakers – Ford, General Motors, Tesla
  • Travel: AirBnB, Booking.com, Trip.com
  • Retail: Amazon, Alibaba, Etsy, eBay
  • Restaurants: Starbucks, Wendy’s, Chipotle
  • Transportation: Delta Airlines, United Airlines

What is a consumer non-cyclical stock?

A consumer non-cyclical stock is a type of stock that typically performs well regardless of the economic climate. These stocks are often associated with companies that produce goods or services essential to human survival, such as utilities, food, beverage, and footwear producers.

A list of consumer non-cyclical stocks

  • Utilities: American Electric Power, Duke Energy, American Water Works
  • Beverages: Coca-Cola, Pepsico
  • Consolidated Edison, Crown Castle International, Deere & Company

That being said, many investors are still willing to take on the risk associated with cyclical stocks. And there are some benefits to investing in cyclical stocks. So, if you’re considering adding some cyclical stocks to your portfolio, here’s what you need to know.

How to find non-cyclical stocks with Stock Rover

It is easy to get a list of consumer non-cyclical stocks by following this process:

  1. Register with Stock Rover for free
  2. Select All -> World ->Sectors -> Consumer Defensive
  3. Review the list of cyclical industries and stocks.
How to find non-cyclical stocks with Stock Rover
How to find non-cyclical stocks with Stock Rover

How to find non-cyclical stocks with TradingView

  1. Try TradingView for free
  2. Select Stock Screener -> Filter -> Sector -> Consumer non-durables
  3. Review the list of cyclical industries and stocks.
How to find non-cyclical stocks with TradingView
How to find non-cyclical stocks with TradingView

When to buy non-cyclical stocks?

Non-cyclical stocks are a good investment in any economic cycle; during a market boom, they might not perform as well as cyclical stocks, but they will still make money. When the economy turns from boom to bust, non-cyclical stocks are a good defensive investment.

The Pros of Investing in Cyclical Stocks

1. They offer the potential for high returns.

When the economy is doing well and cyclical stocks are performing well, you can see some significant gains. If you’re looking for a high-risk/high-reward investment, cyclical stocks might be worth considering.

2. They offer diversification.

Adding cyclical stocks to your portfolio can help diversify your investment portfolio and protect you from losses in other market areas.

3. They can be a good hedge against inflation.

Cyclical companies often have pricing power, which means they can increase prices without losing customers. This can be a good hedge against inflationary pressures.

The Cons of Investing in Cyclical Stocks

1. They’re volatile.

Cyclical stocks can be very volatile, which means they can experience sudden and significant swings in price. If you’re uncomfortable with volatility, cyclical stocks might not be right for you.

2. They underperform during recessions.

During economic downturns, consumers tend to spend less money on discretionary items like cars and vacations. This leads to lower demand for the products and services offered by cyclical companies and often results in lower stock prices.

3. They require careful timing.

Because they tend to move in cycles, it’s important to time your investment. Investing too early or too late in the cycle could lead to losses. For example, if you invest just before a recession, you could see your investment lose value quickly. On the other hand, if you wait until after the economy has begun to rebound, you may have missed out on some of the biggest gains.

4. There’s no guarantee they’ll recover.

Just because an industry or sector has been through a downturn doesn’t mean it will automatically recover when the economy improves. In some cases, companies may not be able to adapt to changes in consumer behavior and end up going out of business. This happened during the last recession when many traditional retailers could not compete with online retailers like Amazon. As a result, many stores closed their doors for good.

Is investing in cyclical stocks profitable?

The profitability of investing in cyclical stocks will depend on a variety of factors, including the individual stock, the sector it belongs to, and the overall health of the economy. However, in general, investing in cyclical stocks does offer the potential for higher returns than investing in other types of stocks. However, this comes with a higher degree of risk, and there is no guarantee that these stocks will recover when the economy improves.

What are counter-cyclical stocks?

Counter-cyclical stocks are stocks that tend to perform well during economic downturns. They are often considered safer investments during recessions, as their services are generally in more demand. Counter-cyclical stocks can be a good option for investors who want to protect their portfolios from losses during recessions.

Understanding counter-cyclical stocks

Consider this, an economy is in sharp decline, more people are unemployed, feeling poorer, less secure, and have fewer opportunities, and well-being is declining. What services will be more in demand? Healthcare, prison services, home security, and the defense industry all profit during strong economic decline.

Counter-cyclical Stock Key takeaways.

  • Counter-cyclical stocks perform well in declining economies and poorly in growing economies.
  • Counter-cyclical stocks are a good investment in declining economies.
  • Counter-cyclical stocks are goods and services purchased during bad times.
  • Counter-cyclical stocks are security services, repossession and eviction services, prison security, and defense products.

Examples of counter-cyclical stocks

Some good examples of counter-cyclical stocks include utilities, security, and healthcare companies. Utility companies tend to do well during recessions, as consumers tend to stick with their pre-existing utilities rather than changing providers in times of financial stress. Food producers also tend to do well during recessions, as people still need to eat despite spending less money. Healthcare providers are another good option during recessions, as people often put off medical procedures when money is tight but still need access to healthcare.

Are defense stocks cyclical?

No, defense stocks are not cyclical; they are considered counter-cyclical, meaning they tend to perform well during economic downturns. This is because governments tend to invest more in defense during times of uncertainty and volatility.

Are there any cyclical ETFs?

Yes, there are several cyclical ETFs available for investors. These ETFs invest in stocks that are cyclical by nature, so they offer the potential for higher returns but also come with a higher degree of risk. Some of the most popular cyclical ETFs include the SPDR S&P Transportation Index ETF and the VanEck Vectors Morningstar Wide Moat ETF.

Final Thoughts

Overall, there are both pros and cons to investing in cyclical stocks. And whether or not they’re right for you will ultimately depend on your individual risk tolerance and investment goals. If you’re considering adding some cyclical stocks to your portfolio, do your research first and always remember to stay diversified.”

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