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Cyclical Stocks

Cyclical stock prices move with the economy. Cyclical stocks often reach their high and low points before the respective peaks and troughs of the economy.

When the economy is in recession, these stocks see a decline in sales and earnings. During periods of expansion, these stocks grow substantially in sales and earnings.

Additional Comments:

Examples of cyclical stocks are stocks issued by capital equipment companies, home builders, auto companies, and companies in other sectors tied to the fortunes of the economy as a whole. The economic growth in 2005-2006 has seen the stocks of John Deere (ticker symbol DE), the farm equipment maker, and Cummins Engine (ticker symbol CMI), the diesel engine manufacturer, rise to their 52-week highs.

During a recession, stocks of this type are beaten down and are considered value stocks for patient investors who are willing to buy them and hold them until the next economic turnaround. Cyclical stocks appeal to investors who like to trade actively by moving in and out of stocks as the economy moves through its cycle.

Related Terms:

Defensive Stocks
Defensive stocks are the stocks of companies that tend to hold their price levels when the ...

Value Stocks
Value stocks are stocks that have lower prices relative to their fundamental values (growth in sales ...

Growth Stocks
Growth stocks are issued by companies expected to have sustained high rates of growth in sales ...

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