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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. …
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