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companies or stocks. You might hear many of these terms during conversations or on the radio or TV, so they deserve some attention.

Cyclical Stocks

We start with cyclical stocks, sometimes referred to as just plain cyclicals. The term cyclical literally means having or going through cycles. In terms of stocks, cyclicals refer to those companies whose stocks closely follow economical cycles. In other words, they do well during good economic times and do poorly during economic downturns. A good economy can be characterized as having low unemployment, high productivity, and little inflation. A bad economy would be just the reverse.

Typically large companies in the industrial sector are the most sensitive to the economic shifts, so these companies are considered cyclicals. General Electric, Alcoa, Boeing, General Motors, and Caterpillar are all considered cyclicals as their growth heavily depends on the economy. As such their stock performance (which depends on their revenue growth) is closely tied to economic cycles. If you can predict economic cycles, cyclicals would be a good bet to trade. That is, again, if you can predict the cycles. Cyclicals are sometimes contrasted with growth stocks. Unlike cyclicals, growth stocks are those stocks whose values appreciate with time without a significant effect from economic cycles. In my opinion the distinction between cyclical and growth stocks is a vague one. Most cyclicals have also proven to be capable growth stocks, and all stocks are sensitive to economic cycles. Cyclicals, however, are more sensitive than others. …