Understanding Cyclical Stocks: Performance & Investment Strategies

A cyclical stock is a type of stock that tends to go up and down with the performance of the economy. When the economy is strong, these stocks tend to perform very well. When the economy is down, the stocks tend to perform poorly. This is in contrast to a non-cyclical stock that can perform steadily regardless of the condition of the economy overall. 

Example of Cyclical Stock

One example of a cyclical stock would be a travel company. When you invest in a company that gets the majority of their revenue from travel, it will tend to do better when the economy is doing well. When the economy is down, people do not have a lot of extra money to spend on travel. Therefore, they will conserve their money and the performance of your stock will be down.

Non-Cyclical Stock

An example of a non-cyclical stock would be utility company. With a utility company, they will always have steady business. Regardless of how bad the economy gets, people are going to try to pay their electric bill, gas bill, and the water bill. Another example of a non-cyclical stock would be companies that make soap and toiletries. Most people will continue to buy soap even if the economy is bad.