Cyclical Stocks: What are they?
Cyclical stocks are those whose business strategies follow an economic cycle of recession and expansion. Cyclical businesses tend to perform exceptionally well in the events of economic developments. However, they might also experience a significant decline in sales & profits when the market is dealing with a recession or similarly challenging economic scenarios.
When this happens, investors can buy in the dips and build a portfolio while the stocks rally as the situation subsides.
Now that you know the basics let us get to the part where we discuss the best consumer cyclical stocks in Canada that you can invest in.
| Cyclical Companies | Current Stock Price | Market Cap | P/E Ratio | Ticker |
| Walt Disney Company | $150.81 | 273.32 Billion | 136.21 | DIS |
| Expedia
|
$166.57 | 25.16 Billion | – | EXPE |
| EPR Properties
|
$47.83 | 3.58 Billion | 364.53 | EPR |
| Magna International | $80.93 | 24.35 Billion | 13.69 | MGA |
| CAE
|
$31.49 | 9.74 Billion | 70.44 | CAE |
| NFI Group
|
$21.41 | 1.65 Billion | 267.52 | NFI |
1-Walt Disney Company:
Although Disney did profit during the pandemic, thanks to the launch of Disney+, but a significant portion of its income was put on halt due to the COVID-19 lockdowns and restrictions. The parks & other experiences were shut down or operated with a significantly reduced capacity to avoid cross-contamination or any increase in the cases of infection. Disney Studio’s business was also hurt, given that most theatres were closed.
However, the business is now healing rapidly from the losses incurred during the pandemic as the stock prices increase. So for investors interested in making a good profit, now is the time to invest when the prices are low and watch the numbers go up as the world heals.
2-Expedia:
Travel goes on and on but not during a worldwide pandemic. Several travel companies saw a steep decline in the income generated throughout the year due to COVID-19 lockdowns and restrictions. One such company that was equally affected was Expedia. The company operates multiple travel websites and saw a massive decline in the stock prices as COVID-19 disturbed the travel sector.
However, as the restrictions are lifted, people have started travelling again. As a result, slowly yet steadily, the stock prices for Expedia are showing an upward trend. So, adding this stock to your portfolio is sure to yield a substantial profit.
3-EPR Properties:
A popular real estate investment trust, EPR properties focuses on owning experimental real estate segments such as ski resorts, movie theatres, eat-n-play locations, along with several other attractions. During the pandemic, most of the tenants of the EPR properties struggled to generate income and pay the bills due to government-mandated shutdowns for non-essential businesses.
This is why EPR Properties suspended its dividend for the stockholders during the pandemic lockdowns. However, the company considered the situation and worked for a solution by deferring the rent until the market conditions improved. Now, as countries go back to the pre-pandemic state slowly, with most of us vaccinated, the company has started earning its profits and caught up with the pending rent.
An EPR Properties shareholder can massively benefit your portfolio as the stock prices beam up with ample dividend opportunities.
4-Magna International:
Magna International is another worthy cyclical stock in Canada for you to invest in. This Canada-based auto parts manufacturer soared high in the charts massively last year. The share prices have doubled up as the auto market recovers within a year. As the need for electric vehicle stocks has increased and is likely to rack up in years to come, this cyclical stock is more likely to blast off to higher highs.
This cyclical stock is now fresh off for acquisition with an 8 percent pullback. Given its juicy 1.8 percent yield & 0.8X sales multiple, this stock is the perfect balance of value and momentum. Looking at the current market scenario, the stock is most likely to attain better numbers.
5-CAE:
Formerly known as the Canadian Aviation Electronics, the CAE Inc. manufactures aviation simulation technologies, training services, and modelling technologies for aircraft manufacturers, airlines, defence customers, & healthcare specialists. With the COVID-19 still mutating beyond our control, there sure is considerable pressure on this stock.
With several pilots requiring re-training, the civil aviation segment by CAE can make up for any losses incurred in the past year. Of late, the company’s shares have shown a significant boost, but it was also caught up in the latest 7.5 percent pullback caused due to broader market speculations. Given its discounted price, it is best to enter the market with CAE in your portfolio and wait for price improvement.
6-NFI Group:
Formerly known as the New Flyer Industries Incorporated, the NFI Group is a manufacturer of motorcoaches and transit buses that are based in Canada & the United States. The company is known for manufacturing high-quality and energy-efficient buses that are bound to get significant traction if it invests in structures that help curb emissions.
Given the limited orders and operational challenges, the company’s stock came down by a whopping 77 percent about a couple of years ago. Moreover, the onset of COVID-19 added to this firm’s problems bringing down the stock prices significantly.
However, given its stance for sustainability, the company might welcome a significant rally similar to that of 2018 as the market bounces back. The future looks bright for this cyclical stock, and the prices are bound to rise over the years to come.
What Industries Fall Under the Cyclical Banner?
Not all companies can be an ideal investment choice. However, you can surely use your judgment and invest accordingly. To help you plan your investment, here we have listed out the sectors that fall under the cyclical stock banner. This will help you understand if they are worthy of being a part of your portfolio.
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Airlines:
The airline industry tends to boom when the economies are strong. Both businesses and individuals spend more on acquiring airline tickets during lean times. Taking an entry into the market during the lean times ensures that you profit from the same once the market starts to boom.
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Hotels:
Like the airline industry, hotels and hotel stocks Canada has also largely depend on businesses and individuals who spend money for travelling purposes. Therefore, the growth of the travel industry is proportional to the development of the airline industry.
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Retail Market:
During economic contractions, consumers tend to lower their discretionary retail items. However, retailers that primarily sell necessities don’t typically fall under the cyclical banner. This is especially true if the sellers are prioritizing offers and discounts. For example, food industry companies Canada has such as Walmart, are considered countercyclical given that the company increases its yearly sales during tough times.
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Restaurants:
As was seen during the COVID-19 pandemic, most restaurants were shut down and relied on home delivery options. However, the latter was also limited as most delivery executives considered safety their first choice and stayed indoors. As a result, people started cooking and experimenting with different recipes. This led to a significant reduction in restaurant stocks Canada.
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Automakers:
The purchase of vehicles tends to come down significantly when the market is dealing with a recession. But, conversely, the stock prices go up with sales made during the prosperous times making these stocks cyclical.
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Tech Market:
Most of the tech stocks fall under the cyclical banner. As a result, businesses and individuals are less likely to purchase the latest products and software in the market when there is an ongoing recession.
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Banks:
Even the banks are hit badly during a recession. The profitability declines due to reduced demand for banking products such as auto loans, mortgages, credit cards, & so on. Additionally, some customers struggle to pay off the loan, restricting banks’ capital flow. Finally, the interest rates fall before & during the recession, which robs the banks of a considerable margin.
Conclusion
Even names from the manufacturing sector could fall under the cyclical umbrella. So, investing in cyclical stocks during the dips is an ideal move for someone in need of a profitable portfolio. However, remember that it is essential to research the company before investing. Study the fundamentals and ensure they are strong enough to push the prices high!
Consumer Discretionary Stocks in Canada
Consumer stocks offer products and services that people like to live with. Companies in the consumer goods sector sell goods and services considered indispensable, such as household appliances, cars and entertainment. Unlike staple food companies, which are necessities, consumer-goods stocks tend to perform better when the economy is strong than when times are tough.
The term “staple food” suggests that staple food companies have a steady demand for their products and are less sensitive to changes in the business cycle. Cyclical consumer sectors tend to perform better during an economic expansion, so they are good to find stocks during a recovery. The Canadian industrial sector is an excellent place to look for companies that investors do not own.
Today, let’s look at a strategy that combines Canada’s cyclical consumer sector with industry to see if we can find companies that can diversify their portfolios while generating additional returns. This article examines the cyclical consumer sector, defines what it is doing to increase the return on your portfolio, and provides you with a complete list of the highest dividend stocks Canada has with comprehensive metrics. If you liked the Consumer Cyclical Dividend Stocks list and are looking for other sectors, you can sign up for our free newsletter to get exclusive access to the stocks and sectors listed below.
Use the chart below to see how the Consumer Discretionary Select Sector SPDR ETF (XLY: US) has performed over three months, years and five years.
Consumer staples include producers and distributors of food, beverages and tobacco, and non-durable household items and personal products. This includes food and drug companies as well as supermarkets. Consumer discretionary stocks include domestic and international companies that manufacture all kinds of non-essential and luxury goods.
Ozon Holdings PLC offers products in various categories, including electronics, household and Da-Cor products, children’s products, fast-moving consumer goods, fresh food and auto parts. Business and Consumer Business and Business Plus. The company sells its products through various channels, including traditional websites and direct apps downloads, to enable consumers to discover digital platforms such as the Apple App Store and Google Play Store.
119.6 billion, $15.13) Canadian Tire Corporation Limited offers a full range of retail products and services in Canada. The direct-to-consumer segment includes retail stores and e-commerce websites.
The business includes products and services that consumers want but do not need. The Services segment consists of hotels, restaurants, leisure facilities, media production services and retail properties. The Representation segment offers Brand Strategy, Marketing, Advertising, Public Relations, Analytics, Digital activation and experience services to businesses and other customers, Intellectual Property License Services, Portfolio Entertainment, Sports, Consumer Goods and Brands, Content Development, Production, Finance, Distribution and Consulting, Television properties, documentaries, feature films and podcasts.
These sectors thrive in bloated economies because they are driven by consumer spending. Businesses depend on business investment because consumer demand can be minuscule. The term “discretionary” suggests that these companies produce products that consumers choose and do not necessarily buy the products they need.
A great strategy is to identify companies in the cyclical industrial and consumer sectors comfortable with high volatility. Industrial companies include Air Canada, Boyd Group Income Fund, CAE Inc., Canadian National Railway Co., Finning International Inc., and technologies such as BMO, CGI Group Inc., Kinaxis Inc. and Open Text Corp. Consumer cyclical companies are also the most frequent dividend payers in the group.
You can invest in discretionary consumer ETFs in Canada. Still, if you are looking for other options, you can also explore ETFs traded on exchanges in other countries (e.g. NYSE US).
Much of the recent success of NKEs has been a conscious decision to run a business directly to the consumer (DTC) and connect directly with end customers.
Disney is a household name in family entertainment with several competitive strengths, including an unrivalled intellectual property stash and a flywheel business model that allows successful films such as Frozen to be spun off into multiple businesses such as theme parks rides, toys, consumer goods and live entertainment. Nike has established a dominant position in sports footwear and sportswear for more than a century through innovations that have made sports equipment available to a broad audience.
After Starbucks introduced the European café concept to the American masses, the coffee company tapped into consumers’ “urge to indulge in a bit of luxury. Its premium beverages have a loyal following worldwide. As industrial production slowed, consumer expectations began to fall. When consumer expectations were low, they began to improve.
In this scenario, strategists highlight the outperformance of commodity stocks and the underperformance of consumer-related stocks. This is exactly what has happened to consumer-cyclical stocks in the so-called consumer discretionary sector as if they were riding a light wave and enjoying the sun. For example, over the last ten years (approximately the time Eddie Lampert sold his AZO shares), the AutoZone stock (AZO, $123.25) has delivered an annualized return of 18.8% above the broader US market, even though it accounts for less than half of the automotive and other aftermarket auto suppliers listed as consumer goods stocks.
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