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Economy is a complicated process with lots of ins and outs. One of the elements are stocks. They represent the financial state of the companies, which play a huge role in the economy of every country. There are also different types of stocks. One of the most interesting for people are cycling stocks. First of all, they are one of the easiest to predicts, so that you can increase your capital with the right knowledge. This text will help you understand the essence and entity of cycling stocks and their examples.
Cycling stocks are the stocks that strictly depend on the business cycle. If the economy is increasing, stocks will increase too. And if the economy cycle is have a decline, stocks’ value will decline as well.
The growth of cyclical stocks is usually short-lived and prone to stumble at the first hint of a decline in profits. If you decide to buy strong recovery stocks, annual profit growth should be between 5 and 10%. The requirement for a recovering company to show two consecutive quarters of pronounced growth in profits means that over the past 12 months it should be at or near a new high. Pay attention to the profit line during these 12 months on the stock chart, the sharper the rise, the better. If the rise in profits is so strong that it reaches a new maximum, sometimes a quarter of profit recovery may be enough.
Most often, changes in the market occur in accordance with changes in the prices of US Treasury bonds with a 30-year maturity, so the prices of these bonds must be carefully monitored. On days when the S P index rises and bonds take weaker positions, cyclical stocks are likely to be stronger than others. On days when both bonds and stocks included in S P are strong, it is necessary to respond to stock price fluctuations that are sensitive to changes in interest rates. On days when both S P and bonds are weak, stocks that are sensitive to changes in interest rates can be good objects to play for a fall. On days when stocks included in S P are weak and bonds are strong, prices for cyclical stocks are likely to begin to rise first when the market revives.
Income from cyclical stocks is closely linked to the general level of economic activity.
Examples of cycling stocks
- The issuers of these shares are companies whose profits are closely related to the general state of the economy.
- So, one of the brightest representatives of companies that have cycling stocks are the building and automotive industry.
- Also, there are many industries that are protected from the overall economic situation. For example, tobacco, food industry.
To conclude, I’d like to give you advice on when to buy these stocks to have the biggest benefit. The determining factor is the choice of time for buying and selling shares (buying at the lowest point and selling at its peak business activity).