How to invest in cyclical, defensive and growth stocks

With the cyclical stock investment strategy, it is difficult for most industries and companies to get rid of the influence of macroeconomic changes. As an emerging market, China's economy is expected to undergo another 20 years of industrialization, during which high economic growth is the main feature. The possibility of serious economic recession or depression is very low, but the cyclical characteristics still exist. China's economic cycle is more manifested in the acceleration and slowdown of GDP growth. For example, when the GDP growth rate reaches 12%, it can be regarded as a boom period, while when the GDP growth rate falls below 8%, it is a downturn period. During this period, most industries will feel the pressure of operation, and some industries and companies will even suffer losses. Typical cyclical industries include basic bulk raw materials such as steel, nonferrous metals and chemicals, building materials such as cement, construction machinery, machine tools, heavy trucks, equipment manufacturing and other capital commodities. When the economy grows at a high speed, the market demand for products in these industries is also high, and the performance improvement will be very obvious. The stocks of companies in these industries will be sought after by investors. When the economy is depressed, all walks of life will no longer expand production, and the demand, performance and stock price of their products will drop rapidly. In addition, some non-essential consumer goods industries also have distinct cyclical characteristics, such as automobiles, high-grade liquor, high-grade clothing, luxury goods, aviation, hotels and other tourism. The slowdown of people's income growth and the uncertainty of expected income will directly reduce the consumption of such non-essential goods. Financial services (except insurance) has obvious cyclical characteristics because it is closely related to industry and commerce and household consumption. These cyclical industries occupy the main body of the stock market, and their performance and share price rise and fall due to the changes in the economic cycle, so the economic cycle has become the fundamental reason for leading bull and bear markets. The key to investing in cyclical industry stocks is to seize the opportunity. If you can get involved before the bottom of the cycle, you will get the richest return on investment. But if you buy at the wrong time, such as when the cycle is at its peak, you will suffer serious losses. It may take five years or even 10 years to usher in the next round of recovery and upsurge. Among them, interest rate is the core factor to grasp the timing of cyclical stocks entering the market. When interest rates are running at a low level or falling continuously, cyclical stocks will perform better and better, because low interest rates and low capital costs can stimulate overall economic growth and encourage all walks of life to expand production and demand. On the contrary, when the interest rate level rises gradually, cyclical industries lose their willingness and ability to expand because of the rising cost of capital, and the performance of cyclical stocks will get worse and worse. Investors should pay attention to the fact that when the central bank first cut interest rates, it is usually not the best time to intervene in cyclical stocks. At this time, the economic prosperity is often the lowest, and some of them are hard to return. The initial rate cut has not yet achieved results. Cyclical stocks will continue to fall for some time, and cyclical industries and stocks will only regain their vitality after repeated interest rate cuts. Similarly, when the central bank started to raise interest rates, there was no need to leave in a hurry. The government is only restraining the momentum of economic overheating, and cyclical industries and stocks will continue for a long time. Only when the interest rate level is rising and approaching the previous high point, the cyclical industry will obviously feel the pressure, and it is also the time for investors to consider changing the wind direction. For investing in cyclical stocks, the P/E ratio is often misleading. Just because a cyclical stock has a low P/E ratio doesn't mean it has investment value. On the contrary, a high P/E ratio is not necessarily overvalued. Take steel stocks as an example. In the downturn, their P/E ratio can only be maintained in single digits. If investors compare it with the market average and think it is "cheap", then they may face a long wait after buying, miss other opportunities and even suffer further losses. The price-earnings ratio of domestic steel stocks should be below 5 times. In good times, such as the first half of 2004, the price-earnings ratio of steel stocks can reach more than 20 times. At that time, if you see the price-earnings ratio rising and dare not buy steel stocks, you will miss a round of market. Because it is insensitive to profit fluctuation, the P/B ratio can better reflect the investment value of cyclical stocks with obvious performance fluctuation, especially for those capital-intensive heavy industries. When the total market value of the stock is lower than the net assets, that is, the P/B ratio is lower than 1, you can usually buy it with confidence, and both the industry and the stock price show signs of recovery. In the whole economic cycle, the cyclical performance of different industries is still different. When the economy has just begun to recover from the trough, basic industries such as petrochemical, construction, cement and paper making will benefit first, and the stock price performance will start ahead of schedule. In the subsequent recovery and growth stage, capital goods and parts industries such as machinery and equipment and cyclical electronic products performed best, and investors could shift gears to buy related stocks. At the peak of economic prosperity, business flourished. At this time, the protagonists are all non-essential consumer goods, such as cars, high-end clothing, department stores, consumer electronics, tourism and so on. If you switch to such stocks, you can enjoy the last feast. In a round of economic cycle, the allocation of industry stocks that benefit the most at different stages can maximize the return on investment. Finally, comparing the balance sheets of these companies can help you find the best performing stocks when choosing those stocks that are about to usher in the industry recovery. Companies with stable balance sheets and relatively abundant cash will have stronger expansion ability in the early stage of industry recovery, and their stock price performance will usually be more eye-catching. Defensive stock investment strategy As the name implies, defensive stock is a variety used by investors to avoid risks when the economic cycle is at a trough, the stock market continues to fall, or the prospects are uncertain and volatile. This kind of stock is defensive because its industry is rarely affected by economic recession and macroeconomic policies. When the profits of cyclical industries decline due to weak demand, defensive industries can maintain their original profits, which is a safe haven for investors in harsh market conditions. Typical defensive industries are public utilities, such as water supply, power supply, heating and other industries. It should be noted that at present, more than 80% of China's electricity demand comes from industrial and commercial enterprises, and only about 10% comes from stable residential electricity consumption. Therefore, the performance of the power industry will also be affected by the economic cycle, and the defensive characteristics are relatively inconspicuous. Another kind of defensive industry is food, consumer goods and other goods and services that residents must consume. For example, no matter whether the economy is warm or cold, when the lights at home are not on, you need to buy the lights of Foshan Lighting (00054 1 share, market, main business) to replace them. In addition, the pharmaceutical industry also has defensive characteristics. If you are ill, you must take medicine. People will not reduce the consumption of cold medicine because the GDP growth rate has dropped by 2 percentage points. Because the number of defensive stocks is relatively small, in the downturn of economy and stock market, it becomes a place for investors to gather and hedge, and its valuation level will rise. They are investment products that can make money or minimize losses in a bear market. But when the economy starts to recover and the stock market is bullish, no one will think of defensive stocks, and their performance will lag behind the market. What is different in China is that the stocks of some companies in defensive industries can also provide the returns of growth stocks, and such companies achieve long-term performance growth through continuous mergers and acquisitions or capacity expansion. Investment strategy of growth stocks Most stocks are hard to perform well when the market is in a downturn. Even defensive stocks are usually relatively strong in the broader market, and it is difficult to obtain absolute returns. Growth stocks can create performance and share price growth year after year even in a bear market, and their performance will be more prominent when the market environment improves. Their performance and share price rise usually span multiple economic and stock market cycles. Growth stocks can have this ability because the company has found new products or businesses with expanding demand, and there are relatively few competitors, and the demand is gradually erupting with the continuous maturity of products and services, so growth stocks mostly appear in high-tech fields. For example, Microsoft in the United States has created 20 consecutive years of performance and high stock price growth by building a computer operating system. In addition, in traditional industries, some companies have found broad business expansion space because they have created new business models. For example, Ctrip.com has created a new "blue ocean" in the mature and chaotic domestic booking market through the Internet and offline mode, and there is still a lot of market share waiting for them to harvest in the future. At present, the domestic innovation ability in the field of science and technology is still relatively weak, and the growth stocks in the A-share market are more in the field of transforming and innovating products and services in traditional industries. However, growth stocks look beautiful, but not everyone is suitable to participate. First of all, it is difficult for investors to make correct investment judgments if they understand these new business models and professional backgrounds and have strong technical requirements. Secondly, the scale of growth companies is relatively small, products and technologies are still improving, and market demand needs to be cultivated. No one can guarantee that he will be a great success, so investing in growth stocks has to bear additional uncertain risks, which is a high-risk and high-return investment style. The conclusion is that cyclical stocks are natural investment varieties, and buying and holding them for a long time is not the smartest strategy. Defensive stocks are the choice when the market situation is bad, and they are complementary to cyclical stocks. Growth stocks bring the most returns to investors, but they also have to bear greater risks accordingly. They are all varieties that can be deeply involved by investors with strong risk tolerance and professional background. There are various industries in the stock market. Understanding the cyclical or aperiodic characteristics of each typical industry is only superficial, and it is more important to master the ability to distinguish the essence. Simply put, the industries that provide daily necessities are non-cyclical industries, and the industries that provide non-necessities for production and life are cyclical industries. It is not excluded that there are some cases of non-cyclical or growth stocks in some typical cyclical industries, so only flexible application and case analysis can achieve ideal investment results. Sohu Securities statement: The information in this channel is quoted from cooperative media and cooperative institutions, and does not represent Sohu Securities' own views and positions. Investors are advised to judge this information carefully and enter the market accordingly at their own risk.