I have been thinking a lot about the rotation from defensive stocks to cyclical stocks that we have seen in the past three weeks. Basically, stocks like Procter & Gamble (PG), Eli Lilly (LLY) and McDonald’s (MCD) have taken a breather from the torrid pace set earlier in the year. And in their place we have seen more success from heavy industrials like 3M (MMM) and Boeing (BA).
And as I mentioned in the Pro Panel this morning, big energy companies like Chevron (CVX) and ConocoPhillips (COP) are finally joining in on the rally after about a year of weakness. Some are still lagging below their highs, like Exxon Mobil (XOM) and Royal Dutch Shell (RDS.B) but I think that investors will be flocking to these names sooner than later. If the bull market is going to continue, traders are likely to shift to these names that seemingly missed out on the rally that drove up defensive stocks earlier this year. The high-yielding dividends in energy don’t hurt either.
The options of these big companies are not reflecting any possibility that this can happen, and that presents what may turn out to be a pretty cool opportunity in large and small-cap cyclicals.