Best Cyclical Stocks to Invest in 2024

Stock markets slumped when a government report revealed that the US economy, the world’s largest, grew at an annual rate of just 1.6% in the first quarter after expanding by 3.4% in the fourth quarter and a 4.9% jump in the third. These ups and downs are why cyclical stocks are back in style.

Cyclical stocks are linked to industries that rise and fall with the economic cycles of expansion, peak, contraction and trough, and are dominated by the companies that sell consumer discretionary goods and services, such as hotels, travel companies, carmakers, retailers and restaurants.?

Even though they are cyclical, the 10 stocks we feature in this guide are better positioned to perform well during an eventual downturn due to the momentum carried forward from the recent economic expansion and some other factors that are unique to their business. Read on to discover our picks of the 10 best cyclical stocks.?

A Closer Look at the Best Cyclical Stocks to Invest in

Now, let’s take an in-depth look at the cyclical stocks that are worth considering for your portfolio in 2024:

1. Booking Holdings – Rising Travel Demand Boosts Margins?

Booking Holdings, which operates a family of travel reservation websites, including Booking.com, has high margins, low overhead costs and should benefit from an improving market for travel, particularly in Europe where its sites dominate a fragmented market. It has quickly embraced artificial intelligence to retain its advantage. It launched the AI Trip Planner in the US last summer and expanded it to the UK market in the fourth quarter.

In 2023, it had $21.4 billion in revenue, up 25%, and net income of? $4.3 billion, which was 40% higher than in 2022. Earnings per share (EPS) rose 54% to $117.4. Gross travel bookings for 2023 were $150.6 billion, an increase of 24%.

The company is doing well enough that it initiated a quarterly dividend of $8.74 per share, on top of the $10 billion it had in stock repurchases in 2023.

2. Chipotle Mexican Grill – Tasty Growth, Record Profits

The combination of rising labor costs and higher expenses for ingredients have led to restaurants becoming more expensive compared to just a few years ago. Chipotle benefits from this trend, though, because more people are opting for fast food chains over traditional restaurants.

Chipotle, known for its freshly made burritos, opened 271 new locations last year, 238 of which had a pickup service for mobile app orders it calls Chipotlane, and had record revenue and profits in 2023. In a move that could benefit the stock, the restaurant chain is planning to carry out a 50-for-1 split this year that would make its share price lower and thus more attractive to a greater number of investors.

The company had decent performance in the first quarter. Revenue was up 14.1% year over year to $2.7 billion, while operating margin increased to 16.3% from 15.5% in the same period a year ago. EPS rose 23.9% year over year to $13.01. The company opened 47 new restaurants in the quarter, including 43 with a Chipotlane.

3. Amazon – E-commerce Giant Spreads Its Dominance

Amazon, the world’s largest online retailer, is constantly evolving. It has moved into online grocery shopping, using its ownership of Whole Foods to create a low-cost grocery delivery subscription service at 3,500 locations.?

In the first quarter, Amazon’s revenue and profit, as well as AWS’s revenue topped analyst forecasts. Revenue rose 13% year over year to $143.3 billion. Net income more than tripled to $10.43 billion, or $0.98 per share, from $3.17 billion, or $0.31 per share a year earlier.

One of the company’s fastest-growing segments is Amazon Web Services (AWS),? the world’s No.1 cloud provider, where revenue climbed 17% in the first quarter from a year earlier to $25 billion. The cloud platform is mainly used by businesses, which makes Amazon’s overall business less affected by the whims of consumer spending.

The company’s ace is its Prime membership, which saves its customers money on delivery costs, and comes with added benefits, such as the Prime video streaming service. It drives a steady revenue stream from membership fees. The membership set-up creates incentives for its customers to stay with Amazon instead of going to a competitor. As the it continues to add perks to the service, such as its online grocery delivery, the barriers for competitors to chip away at Amazon’s 37.6% share of the e-commerce market are growing.

4. GigaCloud Technology – A Bargain Among B2B Stocks

GigaCloud is better known to other businesses than consumers. It provides a business-to-business platform that connects manufacturers, mostly furniture companies in China, to European and North American retailers and resellers.?

GigaCloud improved revenue and EPS the past four consecutive quarters. Consequently, it had a record year in 2023, posting $703.8 million in revenue, up 43.6%, and net income of $94.1 million, up 292%. EPS rose 283% to $2.30. For the first quarter, it predicts revenue of between $230 million and $240 million, compared to $128 million in the same period last year.

GigaCloud is focusing on growth, and bought two companies in the fourth quarter, Noble House Home Furnishings and Wondersign. It spent $85 million for Noble House, which is a leading B2B distributor of indoor and outdoor furnishings. It paid $10 million for Wondersign, a cloud-based interactive digital signage and e-catalog management company. Despite its strong year, it’s trading at around a relatively low 15 times earnings.

5. JPMorgan & Chase – Benefits From Higher-for-Longer Rates?

It’s the largest US consumer bank, and its wealth management arm handles more than $3.3 trillion in assets. It’s in the midst of expanding – operates 4,800 US locations and has said it expects to add 500 new branches by 2027. While bank stocks are cyclical and fall during recessions, JPMorgan Chase has the size to quickly bounce back.

The company is benefiting from a rise in net interest income, thanks mainly to higher interest rates. US Federal Reserve chair Jerome Powell indicated that policymakers are in no rush to cut interest rates as inflation remains faster than desirable.

In the first quarter, the company reported revenue of $41.9 billion, up 8.7% year over year, and net income of $13.4 billion, which rose 44% sequentially and 6% from the same period last year. EPS was $4.44, compared with $0.34 in the first quarter of 2023.?

JPMorgan & Chase raised its quarterly dividend by 9.5%, boosting it for the 14th consecutive year. It’s trading at less than 12 times earnings, making it a bargain compared to other large US banks.

6. JD.com – More Profitable Than Rival Alibaba

Warren Buffet’s adage of “buying businesses, not just any stock,” applies well to JD.com. The Chinese company’s shares have plummeted more than 15% over the past year, but its finances are sound. The e-commerce company is leveraging its logistics network to improve sales and profits. While it’s smaller than Chinese rival Alibaba, it’s more profitable and it’s trading at around 13 times earnings, a bargain for a growth stock.

In 2023, the company posted revenue of CNY 1,084.7 billion ($152.8 billion), representing a 3.7% gain. Net income climbed 32% to CNY 26.0 billion. The company has taken a page out of Amazon’s playbook in gaining market share by improving delivery speed and utilizing its strong logistics network.

The company used the drop in its share price to buy back its stock. It repurchased $356.2 million worth of JD.com shares in 2023 and approved a new share repurchase program to buy back up to $3 billion worth of its own shares through March 2027. It also raised its annual dividend by 23% to $0.76.

7. AutoZone – DIY Trend Driving Revenue, Profits

The price of new cars in the US went up 24% between 2019 and 2023, and the increase in the cost of used cars was even steeper at 33% over that period. Because of that, people are holding onto their cars longer, more than 12 years on average. This is great news for AutoZone, for it means more repairs by do-it–yourselfers and by repair shops, both of which buy at the largest auto parts chain in the US.

In the fiscal second quarter, AutoZone’s sales were $3.9 billion, up 4.6% year over year, as the company opened 26 new stores in the three-month period. The company also saw EPS rise by 17.2% to $28.89. Much of the growth is coming from the international operations, with its international same-stores sales up 24.3% compared to a 0.3% rise for its domestic same-store sales.

The company doesn’t have a dividend but it spent $223.8 million in its share repurchase program in its most recent quarter, with an additional $2.1 billion authorized by its board. AutoZone has a strong track record of share buybacks, having repurchased about 89% of its own shares since 1998.?

8. Parker-Hannifin –? Engineering Its Way to Record Profits

Parker-Hannifin isn’t well-known by typical investors, but its products are crucial to industry. The company makes pretty much everything you can think of related to motion and control technologies, including parts for climate control, aerospace, electromechanical, filtration, fluid and gas handling, hydraulics, pneumatics, process control, sealing and shielding.

In the fiscal second quarter, it posted a record $4.8 billion in revenue, up 3%? year over year, and EPS of $5.23, up 72.4% over the same period. Cash flow from operations in the first two quarters is up 26% to $1.4 billion, or 14% of sales, compared to 12.1% of sales in the first six months of fiscal 2023.

The company is benefiting from two trends, the growth in travel helps it because airlines rely on the company’s parts and the rise in infrastructure spending also works for Parker. The company said it expects yearly sales to rise 3% to 5%. Parker raised its dividend by 11% last year to $1.48.

9. Walt Disney – The Mouse That Roars

This is expected to be a crucial year for the entertainment company as it says its Disney+ streaming business will again be profitable after struggling once the pandemic ebbed. The possibilities for growth there are strong as the company owns 8,000 hours of content spanning more than eight decades.?

In the first quarter, revenue was $23.5 billion, flat year over year, but cost-cutting measures meant that EPS was up 23% from the year before, to $1.22. Disney+ cut its losses by $300 million compared to the fourth quarter of 2023.?

If the economy continues to do well, that’s good news for Disney as people tend to take more vacations to its theme parks when they aren’t worried about their finances. The company has recently raised its dividend by 50% to $0.45, showing that it’s ready to get back to growing the dividend after taking a three-year hiatus from providing one during the pandemic.

10. Boeing – Buy Now, Before the Bounce Back

Boeing is the largest aircraft manufacturer in the US, which gives it a significant moat. It also makes and sells rotorcraft, rockets, satellites, and missiles for the defense industry. It has had well-known issues with its 737 MAX airplanes, including a mid-air blowout of a cabin door in January. Its production of the 737 Max has slowed, because the Federal Aviation Administration has imposed a cap on production for safety concerns.?

The issues with the 737 have battered the stock, but the company posted an encouraging first-quarter report on April 24, all things considered. It had sales of $16.6 billion, down 8% year over year, and a loss per share of $0.56, which narrowed from the $0.69 loss per share the company reported in the same period a year ago.?

The reason it’s impossible to count Boeing out is that airlines need the company to succeed to provide competition with Airbus. Air travel has been down since 2019 but is forecasted to pass 2019 levels this year. It’s estimated that world passenger traffic will hit a record 9.7 billion passengers this year – assuming the airlines can put enough planes in the air.

On top of that, the company’s Defense, Space & Security segment provides some stability. In the quarter, the segment reported revenue of $7 billion, up 6% year over year and operating margin grew by 2.2%. Earnings in the segment were $151 million, after losing $202 million in the first quarter of 2023.

What Are Cyclical Stocks?

The shares of companies that are more sensitive to the ups and downs of the economy are called cyclical stocks. They tend to outperform the market when the economy is expanding and underperform the market during recessions.

For example, financials, consumer discretionary and industrial stocks were among the key cyclical sectors that rose over the past year due to a surging economy.

Two other sectors that rose significantly include information technology and communication.

IT is generally less cyclical than other sectors, though, during downturns, businesses delay upgrades and consumers cut back on discretionary tech purchases.

The communication sector is generally considered defensive, but now that companies such as Meta Platform (NASDAQ: META) and Alphabet (NASDAQ: GOOG) are part of the mix, the sector has become more cyclical.

What Are the Types of Cyclical Stocks?

Travel: People and businesses spend more money on travel when the economy is doing well. For example, Delta (NYSE: DAL), Southwest (NYSE: LUV), American Airlines (NASDAQ: AAL), Booking Holdings, and Walt Disney, which operates entertainment parks, tend to rise when travel demand increases.?

Retailers: People spend more money on discretionary items, such as clothing and furniture, when the economy is doing well. Examples include Amazon, JD.com, Walmart (NYSE: WMT) and Target (NYSE: TGT).

Construction companies: Businesses invest more in new buildings and equipment during an economic expansion. The shares of Lennar Homes (NYSE: LEN) and D.R. Horton (NYSE: DHI) and other developers benefit from this trend.

Industrial companies: These are companies that manufacture durable goods used by other industries. The demand for these goods fluctuates with the economic cycle. Examples include Caterpillar (NYSE: CAT), which makes construction equipment, Boeing and Parker-Hannifan.

Financial companies: Banks make more money when the economy is doing well. Examples include JPMorgan & Chase and Bank of America (NYSE: BAC).

Are There ETFs that Target Cyclical Stocks?

There are several ETFs that provide investors with an array of cyclical companies. The advantage to such ETFs is it can help diversify your investments and cut down on risks. They provide exposure to cyclical stocks without having to select individual stocks.

Some of the more popular ETFs:

Consumer Discretionary: ETFs such as Consumer Discretionary Select Sector SPDR Fund (NYSE: XLY) ETF, the Vanguard Consumer Discretionary ETF (NYSE: VCR), and iShares US Consumer Discretionary ETF (NYSE: IYC) invest in companies that sell non-essential goods and services, such as automobiles, appliances, furniture, and apparel.?

Financials: ETFs such as Financial Select Sector SPDR Fund (NYSE: XLF) ETF, Vanguard Financials ETF (NYSE: VFH) and Schwab US Broad Financial ETF (NYSE: SCHF) invest in companies that provide financial services, such as banks, insurance companies, and asset management firms.?

Industrials: ETFs such as Industrial Select Sector SPDR Fund (NYSE: XLI) ETF and Vanguard Industrials ETF (VIS) invest in companies that produce industrial goods, such as construction materials, machinery, and aerospace equipment.?

Travel: ETFs such as Defiance Hotel Airline and Cruise ETF (NYSE: CRUZ), US Global Jets ETF (NYSE: JETS) and Amplify Travel Tech are a collection of travel stocks, which can include airlines, cruise lines, hotels, online travel booking companies, and even travel insurers.??

Where to Get Cyclical Stock Tips and Insights

A good source of real estate stock information is AltIndex, a subscription-based service that uses alternative data and artificial intelligence (AI) to rate stocks. AltIndex updates its data throughout the day.

Begin with the company’s ranking of best bank stocks, one category of cyclical stocks, or its list of best entertainment stocks, another cyclical sector. AltIndex’s lists update every half an hour with real-time share prices. The list uses an AI score, taken from several datasets, to show which stocks are likely to be active. Stocks are scored from 1 to 100, simplifying the selection for investors. AltIndex relies on web searches, customer satisfaction ratings, social media, and app downloads, to help it analyze a company.

AltIndex has more than 10,000 members and provides more than 100,000 stock insights and alerts each day, and has a strong win rate of 75% from its AI stock picks.

You can try AltIndex’s Starter Plan for just $29 a month and receive stock picks directly to your email, as well as many other useful features.

Conclusion

Cyclical stocks are just one type of stock that investors need to have in their portfolios. While they are riskier than many other sectors, they also rise higher and more quickly when the economy is doing well. The best cyclical stocks are also buoyed by market trends or built-in advantages due to their size, business model or other edge.

The market has shown the ability to grow despite high interest rates. Wages have climbed and jobless rates continue to decline, which means that more people are working and have the money to buy products and services, as well as invest in stocks. Those trends should continue to buoy cyclical stocks that depend on consumer spending.

It’s important to remember that cyclical stocks should just be part of a diversified portfolio, not an exclusive investment strategy, to minimize risk.

References

https://www.wsj.com/economy/central-banking/us-gdp-economy-first-quarter-2024-1675df05

https://s201.q4cdn.com/865305287/files/doc_financials/2023/q4/BKNG-Earnings-Release-Final.pdf

https://ir.chipotle.com/2024-03-19-CHIPOTLE-BOARD-OF-DIRECTORS-APPROVES-50-FOR-1-STOCK-SPLIT

https://ir.chipotle.com/2024-04-24-CHIPOTLE-ANNOUNCES-FIRST-QUARTER-2024-RESULTS

https://investors.gigacloudtech.com/news-releases/news-release-details/gigacloud-technology-inc-announces-fourth-quarter-2023-and-year

https://investors.parker.com/news-events/press-releases/detail/450/parker-reports-fiscal-2024-second-quarter-results

https://s2.q4cdn.com/661678649/files/doc_financials/2024/q1/2024-03-Mar-31-8K-PR-Ex-99-1.pdf

With Boeing Issues, Was Warren Buffett Right To Dump Airlines In 2020? (forbes.com)

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Jim Halley

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Jim Halley

Editor

I am an experienced journalist who has also worked as an editor and writer at the Savannah Morning News, Salt Lake Tribune, USA Today, Stars and Stripes, and The Motley Fool. I spent the first half of my career in sports journalism, but in recent years have switched to writing about my other passion, stocks, particularly healthcare, real estate and consumer staples stocks. I've won numerous journalism awards from the Associated Press and state press associations and have been a judge for the Georgia Sportswriters Association. I've written one non-fiction book, Just One More Time, about Georgia Southern football, and…

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