Is there such a thing as recession-proof stocks?

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The rise in inflation, the ongoing war between Russia and Ukraine, and the Federal Reserve’s plan to raise interest rates, are all potential headwinds for the economy. As a result, it is possible that the U.S. economy could enter a recession in 2022.

 

With this in mind, risk-averse investors might want to consider positioning their portfolios in anticipation of a potential recession. One way to do this would be to buy high-quality dividend growth stocks. We believe blue-chip stocks that have market-beating dividend yields, and the ability to raise their dividends each year, can outperform in a recession.

 

You can download the complete list of all 350+ blue-chip stocks (plus important financial metrics such as dividend yield, P/E ratios, and payout ratios) by clicking here.

 

In addition to the Excel spreadsheet above, this article covers our top 20 recession-proof blue-chip stock buys today as ranked using expected total returns from the Sure Analysis Research Database.

 

The following list represents 20 recession-proof dividend stocks, ranked in order of expected annual returns over the next five years.

Recession-Proof Dividend Stock #20: V.F. Corp (VFC)

  • 5-year expected annual returns: 11.3%

V.F. Corporation is one of the world’s largest apparel, footwear and accessories companies. The company’s brands include The North Face, Vans, Timberland and Dickies. The company, which has been in existence since 1899, generated over $11 billion in sales in the last 12 months.

 

V.F. Corp has a competitive advantage in the way of a stable of well-known, premium brands that offer pricing power. During the last recession the company posted earnings-per-share of $1.39, $1.29 and $1.61 in the 2008 through 2010 stretch, indicating the resiliency of the business. Also, of note is the company’s storied dividend record. The company has increased its dividend for 49 years in a row, qualifying it as a Dividend Aristocrat.

 

Total returns are estimated at 11.3%, due to the 3.6% dividend yield, 7% annual EPS growth, and a small boost from a rising P/E ratio.

 

Click here to download our most recent Sure Analysis report on V.F. Corp.

Recession-Proof Dividend Stock #19: Qualcomm Inc. (QCOM)

  • 5-year expected annual returns: 12.0%

Qualcomm, as it is known today, develops and sells integrated circuits for use in voice and data communications. The chip maker receives royalty payments for its patents used in devices that are on 3G and 4G networks.

 

Qualcomm reported earnings results for the first quarter of fiscal year 2022 on Feb. 2, 2022, (the company’s fiscal year ends August 30, 2022). Revenue grew 29.9% to $10.7 billion, beating estimates by $270 million. Adjusted earnings-per-share of $3.23 compared favorably to adjusted earnings-per-share of $2.17 in the previous year.

 

Qualcomm recently increased its dividend by 10%, and the stock now yields 2%. The company has increased its dividend for 20 consecutive years. We expect total returns of 12% per year, driven by the 2% dividend yield, 7% expected EPS growth, and a 3% annual boost from an expanding valuation.

 

Click here to download our most recent Sure Analysis report on Qualcomm.

Recession-Proof Dividend Stock #18: Franklin Resources (BEN)

  • 5-year expected annual returns: 12.0%

Franklin Resources is a global asset manager with a long and successful history. The company offers investment management (which makes up the bulk of fees the company collects) and related services to its customers, including sales, distribution, and shareholder servicing.

 

On December 14, 2021, Franklin Resources announced a 29 cents quarterly dividend, marking a 3.6% year-over-year increase and the company’s 42nd consecutive year of increasing its payment.

 

In the most recent quarter, total assets under management equaled $1.578 trillion, up $48.0 billion compared to last quarter, as a result of $24.1 billion in long-term net inflows, $10.4 billion of positive market change, and other items.

 

We expect annual returns of 12% per year, consisting of the 4.2% dividend yield, 4% expected EPS growth, and a 3.8% boost from a rising P/E multiple.

 

Click here to download our most recent Sure Analysis report on Franklin Resources.

Recession-Proof Dividend Stock #17: Parker-Hannifin (PH)

  • 5-year expected annual returns: 12.0%

Parker-Hannifin is a diversified industrial manufacturer specializing in motion and control technologies. The company was founded in 1917 and has annual revenues of over $14 billion. Parker-Hannifin has paid a dividend for 71 years and has increased that dividend for a remarkable 65 consecutive years.

 

Notably Parker-Hannifin has exceeded analysts’ EPS estimates for 26 consecutive quarters. In the most recent quarter, net sales and organic sales grew 12% and 13%, respectively, over the prior year’s quarter and adjusted earnings-per-share grew 29%, thanks to strong demand in nearly all markets. It also raised its guidance for organic sales growth in fiscal 2022 from 7%-10% to 10%-12% and adjusted earnings-per-share from $16.95-$17.65 to $17.80-$18.30.

 

We expect total returns of 12% per year, driven by 9% EPS growth, the 1.5% dividend yield, and a 1.5% annual boost from a rising P/E ratio.

 

Click here to download our most recent Sure Analysis report on Parker-Hannifin.

Recession-Proof Dividend Stock #16: Whirlpool Corporation (WHR)

  • 5-year expected annual returns: 12.1%

Whirlpool is a leading home appliance company with well-known brands like Whirlpool, KitchenAid, and Maytag. Whirlpool generated nearly $22 billion in sales in 2021.

 

On January 26, 2022, Whirlpool released Q4 and FY 2021 results. For the full-year, sales came in at $22 billion, which was up 13% compared to 2020, driven by strong consumer demand and cost-based pricing actions. Adjusted earnings-per-share rose 44% in 2021.

 

In April, Whirlpool increased its quarterly dividend 12.0% to $1.40 per share. Shares currently yield 4.1%.

 

We expect annual returns just above 12%, due to the high dividend yield, and a sizable 8% annual boost from a rising P/E ratio.

 

Click here to download our most recent Sure Analysis report on Whirlpool.

Recession-Proof Dividend Stock #15: PPG Industries (PPG)

  • 5-year expected annual returns: 12.5%

PPG Industries is the world’s largest paints and coatings company. It was founded in 1883 as a manufacturer and distributor of glass. With 50 years of consecutive dividend increases, PPG Industries is a member of the Dividend Kings. The company generates annual revenues of about $18 billion.

 

In the 2021 fourth quarter, revenue grew 11.4% to $4.19 billion. Adjusted net income $1.26 per share, compared to $1.69 per share, in the prior year. For 2021, revenue grew 21% to $16.8 billion. Adjusted net income $6.77 per share, compared favorably to $6.12 per share in 2020.

 

We expect 12.5% annual returns, consisting of the 1.8% dividend yield, 8% EPS growth, and a 2.7% annual boost from a rising P/E ratio.

 

Click here to download our most recent Sure Analysis report on PPG.

Recession-Proof Dividend Stock #14: Walgreens Boots Alliance (WBA)

  • 5-year expected annual returns: 12.6%

Walgreens Boots Alliance is the largest retail pharmacy in both the United States and Europe. Through its flagship Walgreens business and other business ventures, the company employs more than 325,000 people and has more than 13,000 stores.

 

In the most recent quarter, sales from continuing operations grew 7.8% over the prior year’s quarter, driven by COVID-19 vaccinations and testing. U.S. retail comparable sales grew 11%, which is a 20-year high growth rate. Adjusted EPS grew 53%, from $1.10 to $1.68, and exceeded analysts’ consensus by 34 cents.

 

Walgreens stock currently yields 4.4%, while we expect 5% annual EPS growth. With the addition of P/E expansion, total returns are estimated at 12.6% per year.

 

Click here to download our most recent Sure Analysis report on Walgreens.

Recession-Proof Dividend Stock #13: Leggett & Platt (LEG)

  • 5-year expected annual returns: 12.6%

Leggett & Platt is an engineered products manufacturer. The company’s products include furniture, bedding components, store fixtures, die castings, and industrial products.

 

The company reported revenues of $1.33 billion for the quarter, which represents a 13% increase compared to the prior year’s quarter.

 

The company is forecasting revenues of $5.3 billion to $5.6 billion for 2022, implying growth of 4% to 10%. The EPS guidance range has been set at $2.70 to $3.00 for 2022.

 

With a P/E of 15, Leggett & Platt stock is undervalued against our fair value estimate of 16. The combination of a rising valuation multiple, 5% expected EPS growth, and the 4.7% dividend yield leads to total expected returns of 12.6% per year over the next five years.

 

Click here to download our most recent Sure Analysis report on Leggett & Platt.

Recession-Proof Dividend Stock #12: Bristol-Myers Squibb (BMY)

  • 5-year expected annual returns: 12.7%

Bristol-Myers Squibb is a leading drug maker of cardiovascular and anti-cancer therapeutics. The company transformed itself due to the $74 billion acquisition of Celgene, a peer pharmaceutical giant which derived almost two-thirds of its revenue from Revlimid, which treats multiple myeloma and other cancers.

 

For the 2021 fourth quarter, revenue increased 8% while adjusted EPS increased 25%. For the year, revenue grew 9% to $46.4 billion with adjusted earnings-per-share up 17%.

 

Shares of BMY trade for a forward P/E ratio below 10. Our fair value P/E estimate is 13-14, which is more in-line with the pharmaceutical peer group. Lastly, BMY has a 2.9% dividend yield, leading to total expected returns of 12.7% per year over the next five years.

 

Click here to download our most recent Sure Analysis report on Bristol-Myers Squibb.

Recession-Proof Dividend Stock #11: ABM Industries (ABM)

  • 5-year expected annual returns: 12.8%

ABM Industries is a leading provider of facility solutions, which includes janitorial, electrical & lighting, energy solutions, facilities engineering, HVAC & mechanical, landscape & turf, and parking. The company has increased its dividend for 54 consecutive years, which makes it a Dividend King.

 

In the most recent quarter, revenues totaled $1.9 billion up 30% versus the previous year’s quarter. Earnings actually declined 7% compared to the previous year’s quarter to 94 cents, but this result beat the analyst consensus by 16 cents.

 

ABM’s dividend payout ratio is expected at 22% for 2022. Due to the low dividend payout ratio and its very stable, recession-resilient business model, ABM Industries’ dividend looks very safe.

 

Click here to download our most recent Sure Analysis report on ABM.

Recession-Proof Dividend Stock #10: Pentair plc (PNR)

  • 5-year expected annual returns: 13.3%

Pentair is a pure-play water solutions company that operates in three segments: Aquatic Systems, Filtration Solutions, and Flow Technologies. Pentair was founded in 1966. Pentair has increased its dividend for more than 40 years, which makes it a member of the Dividend Aristocrats.

 

In the most recent quarter, revenues of $990 million during the quarter rose 24% year-over-year. Pentair recorded earnings-per-share of 87 cents for the fourth quarter, which was up by 24% year over year.

 

Pentair issued its guidance for the current year, now forecasting earnings-per-share in a range of $3.70 to $3.80. At the midpoint, this would represent 13% growth compared to the $3.32 the company earned in 2021.

 

Click here to download our most recent Sure Analysis report on Pentair.

Recession-Proof Dividend Stock #9: The Andersons, Inc. (ANDE)

  • 5-year expected annual returns: 13.3%

The Andersons, Inc. is an agriculture company that conducts business in North America. It operates through the following segments: Trade, Renewables, and Plant Nutrient. The Trade segment includes commodity merchandising and the operation of terminal grain elevator facilities. The trade segment contributed over 70% of the company’s revenue in 2021.

 

In the most recent quarter, revenue of $3.8 billion increased 50% versus Q4 2020, and adjusted earnings per diluted share of $1.14, up cents versus Q4 2020. Growth was driven by strong results across all assets and solid agriculture products margins on rising fertilizers prices and tight supply.

 

The company has a long history of paying dividends and has increased its payout for 26 consecutive years. Shares currently yield 1.5%. Total returns are estimated at 13.3% per year.

 

Click here to download our most recent Sure Analysis report on ANDE.

Recession-Proof Dividend Stock #8: 3M Co. (MMM)

  • 5-year expected annual returns: 13.4%

3M is an industrial conglomerate that sells more than 60,000 products. The company has four separate divisions: Safety & Industrial, Healthcare, Transportation & Electronics, and Consumer products.

 

In the 2021 fourth quarter, revenue increased 0.3% to $8.6 billion, which was $30 million better than expected. Earnings-per-share of $2.31 was down slightly from the prior year but was 29 cents ahead of estimates.

 

For 2021, revenue grew 9.9% to $35.4 billion while earnings-per-share of $10.12 was an 8% improvement from the prior year.

3M has increased its dividend for over 60 years in a row, and the stock yields 4%. Total returns are expected to reach 13.5% per year over the next five years.

 

Click here to download our most recent Sure Analysis report on 3M.

Recession-Proof Dividend Stock #7: Lowe’s Companies (LOW)

  • 5-year expected annual returns: 13.8%

Lowe’s Companies is the second-largest home improvement retailer in the US (after Home Depot). Lowe’s operates or services more than 2,200 home improvement and hardware stores in the U.S. and Canada.

 

In the 2021 fourth quarter, Lowe’s comparable sales increased 5%, while U.S. home improvement comparable sales increased 5.1%. Diluted earnings per share of $1.78 was a 35% increase from $1.32 a year earlier.

 

The company provided a fiscal 2022 outlook and expects diluted EPS in the range of $13.10 to $13.60 on total sales of roughly $98 billion.

 

Lowe’s is a Dividend King, with over 50 consecutive years of dividend increases. Shares currently yield 1.6%. The combination of multiple expansion, 6% expected EPS growth and dividends lead to total expected returns of 13.8% per year.

 

Click here to download our most recent Sure Analysis report on Lowe’s.

Recession-Proof Dividend Stock #6: Polaris Inc. (PII)

  • 5-year expected annual returns: 13.8%

Polaris designs, engineers, and manufactures snowmobiles, all-terrain vehicles (ATVs) and motorcycles. In addition, related accessories and replacement parts are sold with these vehicles through dealers located throughout the U.S. The company operates under 30+ brands.

 

For the 2021 fourth quarter, sales increased 0.7% to $2.17 billion. On an adjusted basis, earnings-per-share equaled $2.16 compared to $3.34 in Q4 2020. For the year Polaris generated sales of $8.2 billion, a 16.7% year-over-year increase, and ahead of prior guidance.

 

Polaris also provided a 2022 outlook. For this year the company anticipates $9.215 billion to $9.455 billion in sales and adjusted earnings-per-share of $10.10 to $10.40.

 

Total returns are expected to reach nearly 14% per year, driven by 4% EPS growth, the 2.4% dividend yield, and a sizable boost from a rising P/E multiple.

 

Click here to download our most recent Sure Analysis report on Polaris.

Recession-Proof Dividend Stock #5: Donaldson Company (DCI)

  • 5-year expected annual returns: 13.8%

Donaldson has been creating filtration solutions for a wide array of applications since 1915. Its sales consist of filters in various engine and industrial applications as core categories, but continuous innovation and acquisitions have expanded the portfolio.

 

In the most recent quarter, revenue increased 18% to $803 million, and was $32 million ahead of analyst estimates.

 

Donaldson’s payout ratio remains well below 40% of earnings. As mentioned, Donaldson prefers to use most of its excess cash for acquisitions and a small amount of share repurchases, but it does raise the dividend regularly.

 

Donaldson’s recession performance is solidified by the competitive advantage of more than 100 years of experience in its field, as well as a strong history of innovation and a sizable installed customer base.

 

We expect annual returns of 13.8% per year, driven by 8% expected EPS growth, the 1.8% dividend yield, and a 4% boost from a rising P/E ratio.

 

Click here to download our most recent Sure Analysis report on DCI.

Recession-Proof Dividend Stock #4: UGI Corp. (UGI)

  • 5-year expected annual returns: 14.9%

UGI Corporation is a gas and electric utility that operates in Pennsylvania, in addition to a large energy distribution business that serves the entire U.S. and other parts of the world. It was founded in 1882 and has paid consecutive dividends since 1885.

 

UGI’s main competitive advantage is in its highly diversified business model. It has electric and gas utilities, propane distribution that covers a wide geographic area and diverse customer base. UGI’s strong performance during the Great Recession illustrates this.

 

The payout ratio is quite reasonable today given the company weathered the COVID-19 recession well. We expect a sub-50% payout ratio for the foreseeable future, indicating excellent dividend safety.

 

We expect 14.9% annual returns over the next five years, due to 6.8% EPS growth, the 3.8% dividend yield, and a about 4.3% annual boost from a rising P/E multiple.

 

Click here to download our most recent Sure Analysis report on UGI.

Recession-Proof Dividend Stock #3: Williams-Sonoma (WSM)

  • 5-year expected annual returns: 15.4%

Williams-Sonoma is a specialty retailer that operates home furnishing and houseware brands, such as Williams-Sonoma, Pottery Barn, West Elm, Rejuvenation, Mark and Graham and others.

 

In the 2021 fourth quarter, comparable brand revenue grew 10.8% over the prior year’s quarter thanks to growth of 16.2%, 18.3% and 4.5% across the Pottery Barn, West Elm and Williams Sonoma segments, respectively. The company grew its adjusted earnings-per-share 37%, from $3.96 to an all-time high of $5.42, and exceeded the analysts’ consensus by an impressive 60 cents.

 

Thanks to its sustained business momentum, Williams-Sonoma raised its dividend by 10%. We expect annual returns of 15.4% per year, driven by expected EPS growth of 4% per year, the 2.1% dividend yield, and an about 9.3% annual boost from an expanding P/E multiple.

 

Click here to download our most recent Sure Analysis report on Williams-Sonoma.

Recession-Proof Dividend Stock #2: Skyworks Solutions (SWKS)

  • 5-year expected annual returns: 17.3%

Skyworks Solutions is a semiconductor company that designs, develops, and markets proprietary semiconductor products used worldwide. Its products include antenna tuners, amplifiers, converters, modulators, receivers, and switches.

 

In the most recent quarter, revenue grew 15% year-over-year. Adjusted diluted earnings per share of $3.14 compared to $3.36 per share in the same quarter last year. Overall, Skyworks delivered first-quarter solid results, with double-digit sequential growth in both revenue and earnings per share.

 

Skyworks has a strong balance sheet with over $1 billion in cash and cash equivalents and no debt. This gives the company tremendous flexibility and resiliency to offset some of its concentrated customer base risks and move forward with its growth plans. The dividend is very well covered by earnings, and we consider it very safe. The company remained profitable during the previous recession.

 

Click here to download our most recent Sure Analysis report on SWKS.

Recession-Proof Dividend Stock #1: Stanley Black & Decker (SWK)

  • 5-year expected annual returns: 17.6%

Stanley Black & Decker is a world leader in power tools, hand tools, and related items. The company holds the top global position in tools and storage sales.

 

For the quarter, revenue grew 1.5% to $4.1 billion, missing estimates by $370 million. Adjusted earnings-per-share of $2.14 compared unfavorably to adjusted earnings-per-share of $3.29 in the prior year but came in 10 cents higher than expected.

 

The company’s low payout ratio (26% projected for 2022) does make it likely that dividends will continue rising even through a serious economic downturn. Stanley Black & Decker’s key competitive advantage is that its products are well-known and respected by customers.

 

Stanley Black & Decker announced fourth quarter results on October 28, 2021. The stock has a 2.2% dividend yield, and we expect 8% annual EPS growth. With an about 7.4% boost from an expanding P/E multiple, total returns are expected to reach 17.6% per year.

 

Click here to download our most recent Sure Analysis report on SWK

Additional Reading

The Blue Chips list is not the only way to quickly screen for stocks that regularly pay rising dividends:

This article originally appeared on SureDividend.com and was syndicated by MediaFeed.org.

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Cyclical investing means understanding how various stock sectors react to economic changes. A cyclical stock is one that’s closely correlated to what’s happening with the economy at any given time. The performance of non-cyclical stocks, however, is typically not as closely tied to economic movements.

 

Investing in cyclical stocks and non-cyclical stocks may help to provide balance and diversification in a portfolio. This in turn may help investors to better manage risk as the economy moves through different cycles of growth and contraction.

 

Related: What is mark to market and how does it work?

 

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A cyclical investing strategy can involve choosing both cyclical and non-cyclical stocks. In terms of how they react to economic changes, they’re virtual opposites.

 

Cyclical stocks are characterized as being:

  • Strong performers during periods of economic growth
  • Associated with goods or services consumers tend to spend more money on during growth periods
  • Highly sensitive to shifting economic cycles
  • More volatile than non-cyclical stocks
  • When the economy is doing well a cyclical stock tends to follow suit. Share prices may increase, along with profitability. If a cyclical stock pays dividends, that can result in a higher dividend yield for investors.

Non-cyclical stocks, on the other hand, share these characteristics:

  • Tend to perform well during periods of economic contraction
  • Associated with goods or services that consumers consider essential
  • Less sensitive to changing economic environments
  • Lower volatility overall

A non-cyclical stock isn’t 100% immune from the effects of a slowing economy. But compared to cyclical stocks, they’re typically less of a roller-coaster ride for investors in terms of how they perform during upturns or downturns. A good example of a non-cyclical industry is utilities since people need to keep the lights on and the water running even during economic downturns.

 

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In the simplest terms, cyclical stocks are stocks that closely follow the movements of the economic cycle. The economy is not static; instead, it moves through various cycles. There are four stages to the economic cycle:

  1. Expansion. At this stage, the economy is in growth mode, with new jobs being created and company profits increasing. This phase can last for several years.
  2. Peak. In the peak stage of the economic cycle, growth begins to hit a plateau. Inflation may begin to increase at this stage.
  3. Contraction. During a period of contraction, the economy shrinks rather than grows. Unemployment rates may increase, though inflation may be on the decline. The length of a contraction period can depend on the circumstances which lead to it.
  4. Trough. The trough period is the lowest point in the economic cycle and is a precursor to the beginning of a new phase of expansion.

Understanding the various stages of the economic cycle is key to answering the question of what cyclical stocks are. For example, a cyclical stock may perform well when the economy is booming. But if the economy enters a downturn, that same stock might decline as well.

 

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Cyclical stocks most often represent things that consumers spend money on when they have more discretionary income.

 

For example, that includes things like:

  • Entertainment companies
  • Travel websites
  • Airlines
  • Retail stores
  • Concert promoters
  • Technology companies
  • Car manufacturers
  • Restaurants

The industries range from travel and tourism to consumer goods. But they share a common thread, in terms of how their stocks tend to perform during economic highs and lows.

 

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The stock market is divided into 11 sectors, each of which represents a variety of industries and sub-industries. Some are cyclical sectors, while others are non-cyclical. The cyclical sectors include the following.

 

 

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The consumer discretionary sector includes stocks that are related to “non-essential” goods and services. So some of the companies you might find in this sector include those in the hospitality or tourism industries, retailers, media companies and apparel companies. This sector is cyclical because consumers tend to spend less in these areas when the economy contracts.

 

 

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The financials sector spans companies that are related to financial services in some way. That includes banking, financial advisory services and insurance. Financials can take a hit during an economic downturn if interest rates fall since that can reduce profits from loans or lines of credit.

 

 

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The industrials sector covers companies that are involved in the production, manufacture or distribution of goods. Construction companies and automakers fall into this category and generally do well during periods of growth when consumers spend more on homes or cars.

 

 

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The tech sector is one of the largest cyclical sectors, covering companies that are involved in everything from the development of new technology to the manufacture and sale of computer hardware and software. This sector can decline during economic slowdowns if consumers cut back spending on electronics or tech.

 

 

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The materials sector includes industries and companies that are involved in the sourcing, development or distribution of raw materials. That can include things like lumber and chemicals, as well as precious metals. Stocks in this sector can also be referred to as commodities.

 

Recommended: Commodities Trading Guide for Beginners

 

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Investing in cyclical stocks or non-cyclical stocks requires some knowledge about how each one works, depending on what’s happening with the economy. While timing the market is virtually impossible, it’s possible to invest cyclically so that one is potentially making gains while minimizing losses as the economy changes.

 

For investors interested in cyclical investing, it helps to consider things like:

  • Which cyclical and non-cyclical sectors you want to gain exposure to
  • How individual stocks within those sectors tend to perform when the economy is growing or contracting
  • How long you plan to hold on to individual stocks
  • Your risk tolerance and risk capacity (i.e. the amount of risk you’re comfortable with versus the amount of risk you need to take to realize your target returns)
  • Where the economy is, in terms of expansion, peak, contraction, or trough

For example, swing trading is one strategy an investor might employ to try and capitalize on market movements. With swing trading, you’re investing over shorter time periods to reap gains from swings in stock prices. This strategy relies on technical analysis to help identify trends in stock pricing, though you may also choose to consider a company’s fundamentals if you’re interested in investing for the longer term.

 

One way to simplify cyclical investing is to choose one or more cyclical and non-cyclical exchange-traded funds (ETFs). Investing in ETFs can simplify diversification and may help to mitigate some of the risk of owning stocks through various economic cycles.

 

 

Ridofranz // istockphoto

 

Cyclical stocks tend to follow the economic cycle, rising in value when the economy is booming, then dropping when the economy hits a downturn.

 

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