Among joint-stock companies, the most important and representative one is

In fact, every stock has a cycle. Grasping the cycle well will be of great help to you in building a stock pool. Cyclical stocks are the largest type of stock, which means they pay very high dividends (of course, the stock price is also relatively high). high) and rise and fall with the boom and bust of the economic cycle. Most of these stocks are speculative stocks. Such stocks, such as those of automobile manufacturing companies or real estate companies, rise rapidly when the overall economy rises; and fall when the overall economy goes downhill. The counterpart is non-cyclical stocks, which are companies that produce necessities for which demand does not change much regardless of economic trends, such as food and medicine.

It is difficult for most industries and companies to escape the influence of the macroeconomic boom cycle. Although as an emerging market, China's economy is expected to undergo another 20 years of industrialization, during which rapid economic growth will be the main feature and the possibility of a severe economic recession or depression is very low, cyclical characteristics still exist. China's economic cycle is more characterized by the acceleration and slowdown of GDP growth. If the GDP growth rate reaches more than 12, it can be regarded as a period of booming economy, and if the GDP growth rate falls below 8, it can be regarded as a period of economic downturn. Of course, industries and companies will have very different feelings in different boom stages. During a downturn, operating pressure will naturally be great, and some companies may even suffer losses.

Investment strategies for cyclical stocks

Typical cyclical industries in our country include basic bulk raw material industries such as steel, non-ferrous metals, chemicals, cement and other building materials industries, engineering machinery, and machine tools , heavy trucks, equipment manufacturing and other capital-intensive fields. When the economy is growing at a high speed, the market demand for products in these industries is also high, and the performance improvement of companies in these industries will be very obvious, and their stocks will be sought after by investors; when the economy is in a downturn, fixed asset investment declines, and the investment in fixed assets declines. If demand for its products weakens, performance and stock prices will fall quickly.

In addition, there are some non-essential consumer goods industries that also have distinct cyclical characteristics, such as cars, high-end liquor, high-end clothing, luxury goods, aviation, hotels, etc., because once people’s income growth slows down and Increased uncertainty about expected income will directly reduce consumer demand for such discretionary goods. The financial services industry (except insurance) also has significant cyclical characteristics because it is closely related to industry, commerce and household consumption. To put it simply, industries that provide daily necessities are non-cyclical industries, and industries that provide daily non-necessities are cyclical industries.

The above-mentioned companies in cyclical industries constitute the main body of the stock market, and their performance and stock prices rise and fall due to changes in the economic cycle. Therefore, it is not difficult to understand why the economic cycle has become the fundamental reason for the dominant bull and bear markets. In view of this, the key to investing in stocks in cyclical industries is to accurately grasp the timing. If you can intervene before the cycle bottoms out and reverses, you will get the most generous investment returns. However, if you invest at the wrong time and position, such as If you buy again when you reach the top, you will suffer serious losses, and you may have to endure a long wait of 5 or even 10 years before you can usher in the next cycle of recovery and upsurge. Although predicting when the economic cycle will reach its peak and trough is as difficult as predicting the winning or losing of gambling, some effective methods and ideas can still be summarized in investment practice for investors to learn from. Among them, interest rate is the most core factor in grasping the timing of entering the market for cyclical stocks. When interest rates run low or continue to fall, cyclical stocks will perform better and better, because low interest rates and low capital costs can stimulate economic growth and encourage all walks of life to expand production and demand.

On the contrary, when interest rates gradually rise, cyclical industries lose their willingness and ability to expand due to rising capital costs, and cyclical stocks will perform worse and worse. Investors need to note that when the central bank has just begun to cut interest rates, it is usually not the best time to intervene in cyclical stocks. This is when the economic climate is at its lowest, and there are some entrenched trends that are hard to come back.

The first few interest rate cuts have not had any effect, and cyclical stocks will continue to decline for a period of time. Only after being stimulated by multiple consecutive interest rate cuts will cyclical industries and stocks regain their vitality. In the same way, when the central bank just starts to raise interest rates, investors don’t have to rush out of the market. Cyclical industries and stocks will continue to be prosperous. Only when interest rates continue to rise and approach the previous high, will cyclical industries clearly feel the impact? Pressure, this is when investors start to consider turning.

Investors should not be too superstitious about the price-to-earnings ratio, because it is often misleading for investing in cyclical stocks. Cyclical stocks with a low price-to-earnings ratio do not mean that they have investment value. On the contrary, a high price-to-earnings ratio does not mean that they have investment value. It’s not necessarily overvaluation. Take steel stocks as an example. During the downturn, its price-to-earnings ratio can only remain in single digits, and can reach as low as less than 5 times. If investors compare it with the market's average price-to-earnings ratio and buy it after thinking it is "cheap", then You may have to face a long wait, miss other investment opportunities, or even suffer further losses. During periods of boom, such as the first half of 2004, the earnings ratio of the steel stock market could reach more than 20 times. At that time, if you saw that the earnings ratio continued to rise and did not dare to buy steel stocks, you would miss a rising market. Compared with the price-to-earnings ratio, the price-to-book ratio is not sensitive to profit fluctuations, so it can better reflect the investment value of cyclical stocks with obvious performance fluctuations, especially for those capital-intensive heavy industry industries. When the stock price is lower than the net assets, that is, the price-to-book ratio is lower than 1, you can usually buy with confidence. Both the industry and the stock price have a high possibility of recovery at any time.

Throughout the entire economic cycle, the cyclical performance of different industries is still different. When the economy reaches an inflection point at a trough and just begins to recover, basic industries such as petrochemicals, construction, cement, and papermaking will be the first to benefit, and stock price increases will start early. In the subsequent recovery and growth stage, capital-intensive industries such as machinery and equipment, cyclical electronic products and related parts and components industries will perform well, and investors can adjust their positions to buy related stocks. At the peak of the economic boom, business is booming. The protagonists at this time are non-essential consumer goods, such as cars, high-end clothing, luxury goods, consumer electronics, tourism and other industries. You can enjoy the final benefits by switching to such stocks. Economic cycle feast.

Therefore, in an economic cycle, allocating stocks in industries that benefit the most at different stages can maximize investment returns. Finally, when picking stocks that are poised for an industry recovery, comparing the balance sheets of these companies can help you find the best performers. Companies with healthy balance sheets and relatively abundant cash will have greater ability to expand in the early stages of industry recovery, and their stock price performance will usually be more eye-catching.