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One of the features of the markets over the last two years or so has been the rise in cyclical stocks. It’s worth digging deeper into them so that investors understand the potential duration and risks.
First off, cyclicals are those stocks that experience boom and bust periods and are predominantly miners and farmers. Most businesses have steady growth that ideally would be increasing from year to year as they raise prices and volumes and improve their margins – all of which contributes to higher profits.
An important factor for non- cyclical stocks is that they mostly have pricing power in that they can decide on the price they’ll sell their goods for, thereby having some control over margins. This isn’t always totally the case; price wars or newer versions of the product can put pressure on pricing. But mostly, non-cyclicals decide on the price they charge for their goods or services.
