What exactly are "cyclicals" ??

[timepass]

I keep hearing various commentators on TV talking about "cyclicals". What exactly are those ? Is it like buying the railway stocks around Diwali and booking out around Railway budget ? Is it a short term cycle (like 3-6 months) ?

Which are the cyclicals at various times of the year ? Which are the cyclicals at this time of the year ?

 

[amsin21]

Thanks timepass, another topic to knowledge base.

Definition :

http://www.investopedia.com/terms/c/cyclicalstock.asp

A good read :

An overview of cyclical stocks

Is this the season to buy cyclical stocks

http://economictimes.indiatimes.com/markets/stocks/news/fii-stake-in-markets-at-10-year-high-top-10-stocks-with-maximum-holding/articleshow/46241814.cms

2nd last question :

http://in.reuters.com/article/2014/10/07/markets-india-stocks-close-idINL3N0S22LI20141007

http://stocks.answers.com/individual-stocks/list-of-cyclical-industries-for-investing

For last question :

MFs go bullish on cyclicals before Budget 2015

 

[amitrandive]

I keep hearing various commentators on TV talking about "cyclicals". What exactly are those ? Is it like buying the railway stocks around Diwali and booking out around Railway budget ? Is it a short term cycle (like 3-6 months) ?

Which are the cyclicals at various times of the year ? Which are the cyclicals at this time of the year ?

A Cyclical stock is a stock highly correlated to the economic activity. When the economy is in a recession the profits of a Cyclical company tend to drop and so its share price. Conversely, when the economy is in a good shape (expansion), the share price tends to goes up with the profit growth.

 

[timepass]

Cyclicals, defensives, seasonals etc..

Thanks a lot, amsin21. That article today in economictimes was the one which prompted this thought.

I found the article on sptulsian.com to be the most informative. I am reproducing some portions here.

Then there are growth stocks and defensive stocks. And we thought we were buying only into stocks?

Well, these various jargons are used by brokerage houses to collectively indicate where they are currently parking their funds. Ultimately they all remain growth stocks fundamentally sound but with that, these various categories are like a subset.

But at the same time, there is a lot of confusion as the line dividing cyclical and seasonal seems very thin seasons also go round and round like a cycle; so how are both different or are they two sides of the same coin?

Cyclical stocks are those which move in tandem with the business cycles and reflect the state of the economy and not the changes in the season. For eg: when there the economy is booming, there is a demand for luxury goods or when there is a recession, automobiles show a slump in demand. This in short is cyclical. The products of the company share the same pattern as the economy and that is what makes them cyclical.

To understand better, use the reference of the opposite non-cyclical. These are products which have a consistent demand, irrespective of the business cycle like beverages, medicines, food, soaps, shampoos, alcohol, cigarettes and education. These are largely recession proof and hence do not move with the business cycles. Know as defensive stocks, they probably help us understand the cyclical stocks better.

On the other hand, seasonal stocks, as the name suggests, depends on the seasons.

Like in summer, demand is high for ACs, refrigerators, invertors, fans, health care products, travel, Hotels, aviation, retailers. In monsoon, fertilizers, pesticides, seeds, all agrochemicals and basically all agricultural products demand is at its best. Monsoon season means demand for cement is at its lowest and so it is for paints and other home products. Travel and hospitality also have a lean season when it is monsoon.

Apart from these seasons of nature, there are other man-made seasons. Like the harvest season, which would mean farmers would have more money in their hands and thus buying power goes up. A good monsoon thus heralds good demand on harvest for automobiles, FMCGs, consumer durabales. A poor monsoon or harvest, users in recessionary trends and that is how cyclical stocks will then come into play. Then there is also the festive season beginning from second quarter of the fiscal, upto the end of third quarter. This time of the fiscal, there is Eid, Diwali, Christmas, Navratri; all the major Indian festivals wherein people tend to spend money. There is also a season unique to India : marriage season; where people loosen their purse strings completely. Thats the time for gold - two thirds of the gold consumption in the country comes from jewellery purchases to mark weddings and other auspicious occasions.