What makes a stock cyclical

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LinkedIn externa link icon. YouTube externa link icon. Tell us what you think Did this article answer your questions? Yes No. Non-cyclical stocks repeatedly outperform the market when economic growth slows.

Non-cyclical securities are generally profitable regardless of economic trends because they produce or distribute goods and services we always need, including things like food, power, water, and gas. The stocks of companies that produce these goods and services are also called defensive stocks because they can defend investors against the effects of economic downturn. They are great places in which to invest when the economic outlook is sour. For example, non-durable household goods like toothpaste, soap, shampoo, and dish detergent may not seem like essentials, but they really can't be sacrificed.

Most people don't feel they can wait until next year to lather up with soap in the shower. A utility company is another example of a non-cyclical. People need power and heat for themselves and their families. By providing a service that is consistently used, utility companies grow conservatively and do not fluctuate dramatically.

This is a key fact about non-cyclical stocks. They provide safety, but they are not going to skyrocket in price when the economy grows. Investing in non-cyclical stocks is a good way to avoid losses when highly cyclical companies are suffering. Below is a chart showing the performance of a highly cyclical company, the Ford Motor Co. This chart clearly demonstrates how each company's share price reacts to downturns in the economy. Notice that the downturn in the economy from to drastically reduced Ford's share price, whereas the growth of Florida Public Utilities' share price barely blinked at the slowdown.

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Did You Know Cyclical stocks tend to move up and down in value alongside the market. Best cyclical stocks to buy in With the economy reopening alongside the vaccine rollout, cyclical stocks should thrive in Here are three cyclical stock picks for the post-pandemic era: 1.

Hotels: Like airlines, hotels depend on individuals and businesses spending money on travel. Retail: During times of economic contraction, people tend to spend less on discretionary retail goods. However, retailers primarily selling things that people need are not typically as cyclical, especially when they prioritize offering discounts.

Restaurants: In poor economies, people eat at home more often than they do during prosperous times, and restaurant stocks often suffer as a result.

Automakers: Consumers tend to hang on to their vehicles longer when recessions hit and are more inclined to buy new vehicles in prosperous times, so automaker stocks tend to be quite cyclical.