As tens of millions of people in the U.S. and around the world get vaccinated against the novel coronavirus, people are traveling, eating out, and going to events in massive numbers again. Of course, that makes many cyclical stocks worth buying, creating massive opportunities for stock investors.
As the pandemic fades, a multitude of businesses, from casino operators to automakers to advertising plays are starting to benefit from very strong, pent-up demand.
At the same time, creating more great opportunities for investors, the massive housing boom is causing other sectors and their stocks to catch fire.
Four of the best cyclical stocks that are heating up and poised to rally much further are:
Best Cyclical Stocks to Buy: General Motors (GM)
The demand for vehicles has heated up as millions of Americans move from cities to the suburbs and ma ny people who used to take public transportation to avoid doing so.
GM’s first-quarter results, released on May 5, showed that it’s benefiting strongly from this trend, as its earnings before interest and taxes, excluding some items, was $4.4 billion, up from $1.25 billion during the same period a year earlier.
Meanwhile, its net income soared to $3.02 billion from $294 million and it sold 642,000 vehicles in the U.S., up from 618,000 during the same period a year earlier.
Providing a big boost to GM stock, GM is finally starting to receive credit from investors for the large number of electric vehicles that it plans to release in the coming months and years.
Its Super Cruise “hands-free driving system” has been generally well-received and its Cruise autonomous driving unit announced an agreement with Dubai to deploy up to 4,000 self-driving Cruise Origin taxis by 2030, CEO May Barra noted in her letter to shareholders sent in conjunction with the Q1 results.
The shares have jumped 42% so far this year and they’ve climbed about 7% since the company released its Q1 earnings.
Las Vegas casinos will go back to 100% capacity “once 60% of eligible county residents get a vaccine shot.”
As of now, nearly 45.5% of the county’s residents had received at least one jab.
Meanwhile, “Casino capacity on the Strip increased to 80%,” and person-to-person distancing fell to three feet.
For Q1, MGM reported an earnings per share loss of 69 cents, versus analysts’ average outlook of a loss of roughly 87 cents per share. Its top line fell 27% YOY, much better than the 53% YOY tumble that the company experienced during the previous quarter. And the casino owner’s “Las Vegas room-occupancy rate” came in at 46%, up from 38% in Q4.
The company’s BetMGM subsidiary is growing very rapidly. It generated $163 million of sales from operations in Q1, versus $178 million in the entire 12 months of 2020.
“We estimate, based on February results that BetMGM has overtaken the number two position in overall U.S. sports betting and iGaming,” CFO Jonathan Halkyard said during MGM’s March Q1 earnings conference call.
In 2022, BetMGM is predicting that its sales will exceed $1 billion, while over the long term the company hopes to increase U.S. market share to between 20% and 25% with EBITDA margins in the 30% to 35% range, according to CEO Bill Hornbuckle.
Within a year or two, I believe that BetMGM will meaningfully contribute to MGM’s bottom line, boosting MGM stock.
In 2021, the shares have jumped 27% and they’re up 16.5% in the last three months.
Cyclical Stocks: United States Steel (X)
When it comes to home building, steel is an alternative to wood. With lumber prices soaring in the U.S. amid the housing sector’s surge, demand for steel is likely to jump meaningfully.
The Biden administration’s infrastructure plan includes about $200 billion for road and rail projects is also likely to significantly boost demand for steel.
What’s more Credit Suisse analyst Curt Woodworth recently wrote that steelmakers would benefit from the combination of economic expansion and a shortage of steel.
In my view, X stock is more of a medium-term pick than a long-term one. Given Biden’s affinity for working to please U.S. allies and his more accommodative positions with China.
I think that the U.S. could meaningfully lower its steel tariffs within a year or two. That would have a meaningful, negative impact on United States Steel.
As previously depressed sectors like travel, restaurants and casinos make comebacks, the advertising space should get a big boost.
As one of the fastest growing major content platforms, Roku will be a key beneficiary of that trend.
Indeed, the company’s extremely powerful first-quarter results showed that this scenario is already playing out.
Its top and bottom lines came in well above analysts’ average estimates. Moreover, its platform sales doubled year-over-year and the company’s gross profit soared an incredible 132% YOY as its average revenue per user climbed 32% YOY.
For the current quarter, Roku expects gross profit of between $295 and $305 million, net income of between $10 and $20 million, and EBITDA, excluding certain items, of between $60 and $70 million.
On May 10, Citi cut its ratings on Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) and Facebook (NASDAQ:FB) to “neutral” from “buy,” citing the market’s outlook for strong ad revenue increases amid difficult YOY comparisons. However, the firm did not downgrade Roku because it sees the company’s ad market as “still nascent.”
On the date of publication, Larry Ramer held long positions in GM,MGM, and US Steel. He was considering entering a long position in Roku during the week of May 10.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.