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Cyclical stocks are often considered an offensive tactic in investing. You use them to hopefully generate high returns as fast as possible when the economy expands. Auto manufacturers, clothing stores, hotel and travel, airlines, retail stores and luxury goods manufacturers are classic cyclicals. Why? When the economy is booming, consumers are more likely to remodel their home, take a vacation, buy a new car or buy that expensive handbag.
Here are 5 consumer cyclical stocks you should have your eyes on.
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Overview: Consumer Cyclical Stocks
Consumer sectors are divided into 2 categories: defensive and cyclical. Defensive includes habitual and staple items, like groceries, liquor and bulk commodities. Cyclical comprises financials, technology, industrials and consumer discretionary items.
Cyclical stocks are sensitive to economic movements and their prices and profits are impacted by business and the health of the economy. The stock of companies in the cyclical sector may suffer decreased profits and typically lose market value during an economic hardship as people try to reduce unnecessary expenses. Share prices and profits can rebound sharply when the economy gains strength — people have more disposable income to spend.
Because cyclical stocks reflect the business sentiment of the economy, you may be able to gauge its general direction by understanding the movement of cyclicals. When interest rates fall, these stocks typically have better valuations — which are a massive boost.
Best Online Brokers for Consumer Cyclical Stock
Online brokers don’t just provide the platform to execute stock trades. They also provide extensive research material, charting capabilities and indicators to help you better understand the stock market. Take a look at Benzinga’s online broker recommendations.
Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.
Webull is widely considered one of the best Robinhood alternatives.
- Active traders
- Intermediate traders
- Advanced traders
- No account maintenance fees or software platform fees
- No charges to open and maintain an account
- Intuitive trading platform with technical and fundamental analysis tools
- Does not support trading in mutual funds, bonds or OTC stocks
Moomoo is a commission-free mobile trading app available on Apple, Google and Windows devices. A subsidiary of Futu Holdings Ltd., it’s backed by venture capital affiliates of Matrix, Sequoia, and Tencent (NASDAQ: FUTU). Securities offered by Futu Inc., regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Moomoo is another great alternative for Robinhood. This is an outstanding trading platform if you want to dive deep into smart trading. It offers impressive trading tools and opportunities for both new and advanced traders, including advanced charting, pre and post-market trading, international trading, research and analysis tools, and most popular of all, free Level 2 quotes.
Get started right away by downloading Moomoo to your phone, tablet or another mobile device.
- Cost-conscious traders
- Active and Advanced traders
- Over 8,000 different stocks that can be sold short
- Access trading and quotes in pre-market (4 a.m. to 9:30 a.m. ET) and post-market hours (4 p.m. to 8 p.m. ET)
- No minimum deposit to open an account.
- No chat support
E*TRADE is an online discount trading house that offers brokerage and banking services to individuals and businesses. One of the first brokers to embrace online trading, E*TRADE not only survived both the dot-com bubble and Recession — it thrived. You can choose from two different platforms (one basic, one advanced). E*TRADE is a suitable broker for traders of most skill levels, whether you want to buy mutual funds and hold them for decades or dabble in options swing trading. E*TRADE offers a library of research and education materials to help you out.
- Active traders
- Derivatives traders
- Retirement savers
- Sophisticated trading platforms
- Wide range of tradable assets
- Exceptional customer service
- Limited currency trading
- Higher margin rates than competitors
- No paper trading on its standard platform
This latest groundbreaking technology is IBKR GlobalAnalyst, a new trading tool that helps investors compare the rate of PEG or price-earnings growth valuations and provide more immediate and comprehensive financial metrics of stocks, globally.
Recognizing that stock selection can be challenging for investors to compare the valuations of domestic and international stocks, Interactive Brokers created GlobalAnalyst to offer investors a simple, yet powerful tool to easily evaluate investment opportunities around the world.
Using GlobalAnalyst, investors can search for stocks by region, country, industry, market capitalization and currency to uncover undervalued stocks worldwide. The resulting table displays the current market and financial metrics, including the PEG Ratio. The PEG Ratio is the PE ratio divided by the three-year compound earnings growth rate, and smaller PEG Ratios typically indicate undervalued companies.
- Price earnings growth valuations
- Easily evaluate investment opportunities
CenterPoint Securities is ideal for active traders who demand access to advanced tools and services. While investors and casual traders are likely to be content with the basic offerings of traditional online brokerages, active traders will benefit from CenterPoint’s suite of advanced trading tools. If you value execution quality, access to short inventory, advanced trading platforms, and accessible customer service, CenterPoint is an excellent choice.
- Intermediate to Advanced traders
- High-volume traders
- Momentum traders
- Short sellers
- Unrivaled access to short inventory
- Flexible order routing for improved executions
- Discounts for active traders
- Advanced platform with fast executions
- Reliable customer service
- Not designed for beginner or low-volume traders
Features to Look for in Consumer Cyclical Stock
Here are a few indicators based on which you can assess a cyclical stock.
- Earnings per share (EPS) is the amount each share would receive if a company paid out all profits to shareholders. It reveals how companies in the same industry compare. Look for stocks with a pattern of earnings growth and a habit of reinvesting a significant fraction of earnings in the growth of the business. You can find a company’s earnings per share ratio on its annual financial report.
- Market share growth is a fundamental goal for most consumer cyclicals. Most companies aim at boosting their sales at a quicker pace than their competition. While some stocks disclose their actual market share, investors often judge a company’s growth rate by how it stacks up against its competition. A persistent, dominant market share implies sales growth and higher profit margins year after year.
- Dividend yield is a stock’s dividend reported as a percentage of its share price. If a share of stock is selling at $50 and the company pays out $2 per year in dividends, then its yield is 4%. Besides generating income for the shareholders, dividends are a good indicator of a company’s strength compared to its competition. A history of rising dividends tells of a strong company that maintains payouts at all times.
Track the Consumer Demand With Cyclicals
Ultimately, cyclical stock investing is a game of patience, and the range of stocks goes beyond the 5 companies described above. But if you’re interested in adding some exposure to a high-growth segment of the economy, these stocks are a good starting point. Closely monitor economic events to better understand which industries are on the road to recovery. Based on this information, you may consider trimming or adding your positions.