Cyclical Stock

A stock that tends to rise and fall with economic cycles. These tend to be stocks of firms that make heavy-duty items such as steel and automobiles, as well as firms such as airlines whose business increases in boom times. Other cyclicals include capital-goods makers (who supply manufacturing equipment), forest-products concerns and firms in the construction industry. The problem for investors is that cyclical stocks are usually a leading indicator -- in other words, they run up before an economic upturn, meaning you have to be prescient to really make these work for you. What's more, expectations of a downturn can drag these same stocks right back down. Playing cyclicals effectively is a tough way to make a living.



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