5 Best Cyclical Stocks To Invest in 2024

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Cyclical stocks, as the name implies, perform better at different times of the economic cycle. Specifically, during expansionary periods, demand for cyclical stocks tends to heat up, while during recessions or economic slowdowns, investors tend to prefer more consistent, defensive stocks.

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What Are Cyclical Stocks?

All stocks are subject to business cycles. In other words, all companies will feel periods of boom and bust depending on a number of variables. During periods of high interest rates and inflation, for example, all companies feel the pain of higher costs. During recessions or periods of weak consumer spending, revenue is impacted.

But some companies are better able to manage these business cycle fluctuations than others. True cyclical companies rely almost exclusively on the success of the economy for their own success. In other words, they feel the highs and lows more acutely than other types of companies, who can better manage their income and profits on a less cyclical basis.

What Are the Best Cyclical Stocks?

If you’re looking to buy quality cyclical stocks, check out this list of the best options for 2024. Just be sure to speak with your financial advisor to determine if any of them play a role in your portfolio, according to your own investment objectives and risk tolerance.

1. Delta (DAL)

• P/E ratio: 9.01
• Dividend yield: 0.93%

Delta is one of the biggest names in one of the most cyclical industries you can find: commercial aviation. Think about it this way — when your money is stretched thin, are you usually spending it on airfare and travel, or things like food and medicine? This reality makes companies like Delta particularly susceptible to economic downturns.

According to Barron’s, analysts are bullish on the stock, with 17 out of 22 slapping a “buy” rating on the stock, with an average price target of $67.96. Earnings and revenue have actually been picking up at Delta, which has been able to pay down some of its long-term debt as well.

Pros

• Inexpensive
• Well-managed
• Leveraged to America’s pent-up demand for travel

Cons

• Performs poorly during recessions

2. Tesla (TSLA)

• P/E ratio: 85.25
• Dividend yield: N/A

Tesla is an automaker, which puts it in a decidedly cyclical industry. However, as many will attest, Tesla is no ordinary car company. In addition to making some of the best-loved cars in the world, Tesla was the first company to prove that electric vehicles could be viable and profitable. The company took it on the chin earlier this year, as everything from a slowdown in China to falling demand and price cutting affected the company’s bottom line. But shares have been trending gradually upward since spring, and prices have spiked since October — perhaps a temporary boost from CEO Elon Musk’s role in the presidential election and appointment as a consultant to the incoming Trump administration.

The bottom line is that if you believe in Tesla as a vehicle maker, consider picking up shares to hold for the long term. For now, analysts rate the stock a “hold.”

Pros

• Recent momentum
• Great future potential

Cons

• Mercurial CEO
• Production and supply chain issues
• Susceptible to a recession

About Recessions

As 2024 draws to a close, the Federal Reserve and many economists outside of government expect a soft landing — that is, continued progress toward a 2% inflation rate without triggering a recession. The latest gross domestic product figures support that opinion. Whereas a contracting GDP would signal a recession, GDP grew 2.8% in the third quarter. At the same time, unemployment dropped 0.1%, to 4.1%, from August to September. Both metrics indicate economic strength likely to hold at least through the end of the year.

3. Alcoa (AA)

• P/E ratio: N/A
• Dividend yield: 0.97%

Alcoa, formerly known as the Aluminum Company of America, is one of the most cyclical stocks in America. But it’s actually working to change all of that. Blazing the trail for others in its industry, Alcoa is looking to become a zero-emission producer, something previously unheard of in the aluminum smelting process.

Alcoa is perhaps the single best example of a cyclical stock, as its price moves dramatically based simply on supply and demand for aluminum. When aluminum prices fall, such as during low-demand times like recessions, the company suffers mightily. But the opposite is also true. At the beginning of 2024, Alcoa traded down sharply in line with aluminum prices. But a resurgence in nearly all commodity prices since then has turned that loss into a 21+plus gain as of Nov. 14.

Pros

• Inexpensive
• Well-run
• Eco-conscious
• Improved balance sheet

Cons

• China has an outsized influence, and Alcoa’s stock price is almost entirely dependent on the price of aluminum, which suffers in recessions.

4. Costco (COST)

• P/E ratio: 55.78
• Dividend yield: 0.50%

In many ways, Costco isn’t a traditional “cyclical” stock. The company is so successful that it can be hard to think of it as a retailer — but that is definitely a cyclical industry. It’s an economic truism that when times are good and consumers are flush with cash, they tend to spend more, and that’s when Costco does its best. However, as far as retailers go, Costco is among the most defensive you’ll find. 

For starters, the company has a rabid following, based on its commitment to high quality and low prices and the “treasure hunt” quality to its stores. But perhaps even more important than that, Costco derives a large portion of its revenue from its membership fees. That’s right, customers pay either $60 or $120 simply to shop at Costco, and that money is sticky, with renewal rates above 90%. This is the type of “cyclical” stock that has some special features to make it a long-term winner.

Pros

• Large following
• Recurring membership fee revenue

Cons

• In recessions, customers simply won’t spend as much at the store.

5. Expedia (EXPE)

• P/E ratio: 23.50
• Dividend yield: N/A

Expedia is a cyclical stock because travel is dependent on a good economy and a confident consumer. However, it’s one of the most diversified and well-managed companies in the space, so if you can handle the economic swings, it can be a good company to own. In addition to its namesake Expedia website, the company owns many other well-known travel brands, including Travelocity, Vrbo, Hotels.com, Orbitz, Hotwire and Carrentals.com. Travel tailwinds, including continued pent-up demand since the pandemic, bode well for companies like Expedia going forward, as long as the economy can avoid a recession.

Pros

• Diversified portfolio
• Analysts find it undervalued at current levels.

Cons

• A slowing economy would hurt the company on multiple fronts.

How Do You Know if a Stock Is Cyclical?

A stock is cyclical if it’s particularly susceptible to changes in the economy. While there is no specific “cyclical industry,” companies in various businesses qualify. You can determine if a stock is cyclical by analyzing both its earnings and revenue during up and down economic cycles or by understanding how the company generates its profits. If it relies on a good economy to be profitable and suffers dramatically during downturns, it can be considered cyclical.

How To Invest in Cyclical Stocks

You can buy cyclical stocks through any stock broker or financial services firm that offers stock trading. Simply pick a firm you like — preferably one that offers zero-commission trading — and provide some personal and financial information, such as your name, date of birth, address, Social Security number, and banking information, to open an account. Fund your account, pick the cyclical stock you’d like to own and execute the trade through your broker.

Cyclical Industry Examples

According to the Corporate Finance Institute, these are the best examples of cyclical industries:

• Auto components
• Construction
• Semiconductor
• Steel
• Airline
• Hotels, restaurants and leisure
• Textile, apparel and luxury goods

When you look at the list, it’s easy to grasp what a cyclical stock really is. When times are bad, for example, most people aren’t spending their hard-earned money on airline trips to exotic locations or eating out at restaurants every night. Those industries perform well when the economy is booming, but they can suffer mightily when consumers have to protect their money instead of spending it. Construction and expansion also slow during recessions, hurting basic metals companies, for example.

Non-Cyclical Industry Examples

Utilities are a classic example of a non-cyclical industry. Regardless of how the economy is doing, most people still need to pay their power bills and keep the lights on, so utilities have a fairly predictable, reliable stream of income.

Although tobacco use is down across the globe, the industry is still non-cyclical because of its addictive nature. Those who still smoke tend to continue to buy tobacco products even when times are hard, helping to give this industry a more defensive slant for investors.

Final Take

Regardless of how well a cyclical company may be run, you should generally only consider buying it when an economic expansion lies ahead. Even the best producer of steel in the world, for example, will see demand greatly curtailed during a severe recession, as every industry from construction to home building to auto manufacturing will require less of their product.

But cyclical stocks in particular often get beaten down to very low valuations during recessions — which happen fairly often — making them bargains when the next upturn arrives. Just be sure to be ahead of the curve, as the stock market typically “looks forward” about six months. In other words, if you wait to buy a cyclical stock until the economy is booming, its stock price will have likely already made the bulk of its move upwards.

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