Cyclical Stock

A stock that prospers in tandem with the economy and faulters when the economy does poorly. These stocks include consumer cyclicals and most industrial stocks.

It is important to keep in mind that blue chips may be cyclical stocks as well and their financial performance may differ in different periods in the economy.

It is difficult and unadvisable to attempt to pick a bottom in a cyclical industry. Due to shifts in the industry, a cyclical company may not recover in prosperous times either, for example US automakers.

A cyclical stock may appear to have a low valuation(most commonly used would be the Price-Earnings ratio) at some point, but this may be misleading as the stock market may expect the company to earn less in the future as the economic boom fades.

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