Up, Down, All Around – Understanding Cyclical Stocks

by David Jenyns on December 1, 2008

Among the basic cyclical industries are steels, machinery, machine tools, oils, chemicals, autos, coppers, and nonferrous metals.

Epitomizing U.S. heavy industry, the steels have long been considered feast-or-famine stocks and depend much upon their most important customer—the automobile industry, which consumes about 20 percent of steel shipments.

While highly cyclical, the automobile industry is believed to possess further growth prospects because of the generally rising basic demand for cars. Moreover, the comparatively high profit margins which traditionally justified the relatively high market price of auto shares have dwindled appreciably due to the increased percentage of lower-priced and, therefore, lower-profit margined compacts.

Aluminum issues are also cyclical because of the shifting demand from the building, electrical, automobile, aircraft and missile industries. Few industries have grown since the end of World War II as has the aluminum industry. In the automobile industry, aluminum stands to benefit from the trend toward compact cars.

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