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Stock Terms: What Is Cyclical Stock?

2011/3/15 16:17:00 185

Stock Cyclical Stock

   Cyclical stock It means paying dividends very high (of course). Price of stock Relatively high), and fluctuated with the ups and downs of the economic cycle. shares 。 Most of these stocks are speculative stocks.


Shares of such stocks, such as automobile manufacturers or Real Estate Company, also rose rapidly when the overall economy rose, and the prices of these shares also fell when the overall economy declined. Corresponding to non cyclical stocks, non cyclical stocks are those that produce necessities. No matter what the economic trend is, people's demand for these products will not change much, such as food and drugs.


Most industries and companies are unable to get rid of the macroeconomic boom cycle. Though emerging as a new market, China's economy is expected to undergo 20 years of industrialization. During this period, the rapid economic growth is the main feature. The possibility of serious economic recession or depression is very low, but cyclical characteristics still exist. China's economic cycle is more pronounced as the acceleration and slowdown of GDP growth. For example, the growth rate of GDP can reach over 12%, which can be regarded as a boom period. The GDP growth rate falls to below 8% for the downturn. At different stages of prosperity, industry and business will naturally be very different. During the downturn, the pressure of business will be great. Some companies will even suffer losses.


Investment strategy of cyclical stock


Typical cyclical industries in our country include the capital intensive industries such as iron and steel, nonferrous metals, chemical industries, building materials industry, construction machinery, machine tools, heavy trucks, equipment manufacturing, and other capital intensive industries. When the economy is growing at a high speed, the market demand for products from these industries is also rising. The performance of these industries will be improved obviously, and their stocks will be sought after by investors. When the economy is in a downturn, the investment in fixed assets will decline, and the demand for their products will weaken, and the performance and share prices will fall rapidly.


In addition, some non essential consumer goods industries also have distinct cyclical characteristics, such as cars, high-end liquor, high-end clothing, luxury goods, aviation, hotels and so on, because once people's income growth slows down and the uncertainty of their expected income increases, they will directly reduce the consumption demand for such non essential commodities. Financial services (except insurance), which are closely related to industry and Commerce and household consumption, also have significant cyclical characteristics. To put it simply, the industry that provides the necessities of life is the non cyclical industry. The industry that provides the nonessentials of life is the cyclical industry.


The above cyclical industry enterprises constitute the main body of the stock market, whose performance and share price rise and fall due to the change of the economic cycle, so it is not difficult to understand the reason why the business cycle has become the root cause of the bull market and bear market. In view of this, the key to the investment cyclical industry stock is the accurate timing. If you can intervene before the bottom of the cycle, you will get the most generous return on investment, but if you buy it at the wrong time and location, if the cycle reaches the top, you will suffer serious losses. You may have to endure 5 or even 10 years of long wait to usher in the next round of recovery and inflation. Although predicting when the economic cycle will reach its peak and bottom, it is as difficult as predicting the winning and losing of gambling. But in investment practice, some effective methods and ideas can be summed up, so that investors can learn from them. Interest rate is the core factor to grasp the timing of periodic stock market entry. When interest rates are low or running down, cyclical stocks will become better and better because low interest rates and low capital costs can stimulate economic growth and encourage businesses to expand production and demand.


On the contrary, when interest rates are rising gradually, the cyclical industry will lose the desire and ability to expand because of the rising cost of capital, and cyclical stocks will become worse and worse. What investors need to note is that when the central bank has just started to cut interest rates, it is usually not the best time to intervene in cyclical stocks. This is the time when the economic downturn is at its lowest stage. The initial interest rate cuts will not be effective. Cyclical stocks will maintain a downward trend for a period of time. Only after repeated interest rate cuts, will the cyclical sectors and stocks regenerate. Similarly, when the central bank has just started to raise interest rates, investors do not have to rush out of the field. Cyclical industries and stocks will continue to be in the air for a while. Cyclical industry will feel the pressure only when interest rates keep rising near the previous high point. This is when investors begin to consider turning. {page_break}


For price earnings ratio, investors can not be too superstitious, because it is often misleading for investment cyclical stocks. Low cyclical stocks with low price earnings ratio do not mean that they have investment value. On the contrary, high P / E ratio is not necessarily overvalued. Taking iron and steel stocks as an example, in the downturn, the P / E ratio can only be kept in a single digit, and the minimum can be less than 5 times. If investors compare it with the market average price to earnings ratio, think that buying after "cheap" may be faced with a long wait, and will miss other investment opportunities or even suffer further losses. In the boom period, such as the first half of 2004, the steel and steel market can achieve more than 20 times earnings. At that time, if we see that the P / E ratio keeps rising and we dare not buy steel stocks, we will miss a rising market. Relative to the P / E ratio, the market capitals rate is not sensitive to the fluctuation of profits, which can better reflect the investment value of the cyclical stocks with obvious volatility, especially for those heavy capital heavy industries. When the share price is lower than the net assets, that is, the market rate is below 1, it can usually be bought at ease, regardless of whether the industry or stock price has the greatest possibility of recovery at any time.


In the whole business cycle, the cycle performance of different industries is different. When the economy is at a turning point in the low valley and has just begun to recover, petrochemical, construction, cement, paper and other basic industries will benefit first and share price rises will start in advance. In the subsequent growth stage of recovery, machinery and equipment, cyclical electronic products and other capital intensive industries and related spare parts industry will perform well, and investors can adjust the stock to buy related stocks. At the peak of the economic boom, business is booming, and the leading players are non essential consumer goods such as cars, high-end clothing, luxury goods, consumer electronics and tourism.


Therefore, in a round of economic cycles, the most beneficial sectors can be maximized. Finally, when selecting stocks that are about to usher in the industry's recovery, comparing these companies' balance sheets can help you find the best performing stocks. Those companies with healthy balance sheets and relatively large cash margins will be more capable of expanding at the beginning of the industry's recovery and share prices will usually be more eye-catching.

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