The coming summer will be a blockbuster as cyclical stocks are finally ready to sizzle after a lackluster year.
In addition, all states are in various stages of reopening. And fresh stimulus funds and strong employment growth will combine to unleash massive pent-up demand.
Cyclical stocks follow the flow of the economy. However, considering that the economy is recovering and Biden has laid out an aggressive plan to bolster local demand and manufacturing, it’s safe to assume the worst is behind us, especially in the consumer discretionary sector.
With this newfound enthusiasm, let’s take a deep dive into five cyclical stocks that are poised to do very well, now that people have a few more dollars in their pocket:
- Uber Technologies (NYSE:UBER)
- Carnival Corporation (NYSE:CCL)
- The Walt Disney Co. (NYSE:DIS)
- Southwest Airlines (NYSE:LUV)
- TJX Companies (NYSE:TJX)
Cyclical Stocks: Uber Technologies (UBER)
TipRanks 12-Month Consensus Price Target: $72.58 (55.58% Upside Potential)
It may seem surprising that Uber is on this list of cyclical stocks. After all, Uber is known for disrupting the taxi industry and making a fortune along the way. So, for investors, picking the stock seems like a no-brainer.
However, gross bookings on rides suffered a massive drop last year because of the pandemic. It makes sense. You don’t want to be stuck in a confined space during these times, despite Uber taking as much precaution as possible to minimize transmission risk.
Overall, last year was horrible for the ride-hailing giant. In the last four quarters, gross bookings have meandered along, falling by 5% year-over-year, or 4% on a constant currency basis, in Q4’20. Likewise, the top line fell 16% over the year-ago period or 15% on a constant currency basis. The Delivery business was its saving grace, though.
CEO Dara Khosrowshahi highlighting the segment, said, “While 2020 certainly tested our resilience, it also dramatically accelerated our capabilities in local commerce, with our Delivery business more than doubling over the year to a nearly $44 billion annual bookings run-rate in December.”
However, now that a vast percentage of the U.S. population is vaccinated, Uber is expected to do very well in the forthcoming quarters. Even more recently, Uber reported better-than-expected results in the first quarter of the year.
As a result, Uber’s net loss came in at $108 million, a significant improvement from a $968 million loss in the fourth quarter. But a large reason for the better performance was the $1.6 billion gain from the disposal of its self-driving unit, ATG.
Moving forward, we will see Uber doing well organically due to the broader economic recovery.
Carnival Corporation (CCL)
TipRanks 12-Month Consensus Price Target: $29.17 (12.41% Upside Potential)
CCL and other cruise stocks took a massive hammering due to the nature of this crisis. However, as of this writing, I believe we are at the cusp of passenger-filled cruise ships sailing in U.S. waters again.
The Centers for Disease Control and Prevention has greenlighted trial voyages meant to take place in advance of sailings that include paying passengers.
That is music to the ears of several cruise lines, including CCL, which is the world’s largest cruise company.
In the last year, CCL saw a top-line decrease by a massive 96%. However, in the last five quarters, the cruise operator has managed to beat expectations just once, according to CNBC data, a clear sign of its struggle during the pandemic.
Nevertheless, now that we are closer to setting sails once again, this is an excellent turnaround play that should do very well during the summer.
Cyclical Stocks: The Walt Disney Co. (DIS)
TipRanks 12-Month Consensus Price Target: $211.11 (16.13% Upside Potential)
Disney’s massive expansion into streaming content has been the saving grace for the iconic entertainment company amidst a very stressed outlook. When most people were shuttered in their homes, the company saw massive gains in its Disney+ streaming service, surpassing 100 million faster than Netflix (NASDAQ:NFLX).
One of the main reasons Disney stock is up more than 70% in the past year is because of its streaming service. However, it has come at a cost. The service is still unprofitable, prices are low, and the company is spending billions on original content.
Now that the economy is opening up once again, Disney’s parks division is set to benefit massively. In addition, sports events resuming will lead to ESPN moving into the spotlight once again.
Finally, it’s important to note that Disney is an extremely well-diversified enterprise. Hence it is one of the top cyclical stocks on the stock market now.
Southwest Airlines (LUV)
TipRanks 12-Month Consensus Price Target: $68.80 (13.36% Upside Potential)
Covid-19 disturbed almost every aspect of our lives in 2020. Lockdowns, travel restrictions, new safety rules, all of these things changed our daily routines immensely.
The airline industry was among the hardest-hit sectors. It’s understandable, considering the nature of this crisis. However, many of the smaller, domestic airlines fared better than some of their more established peers.
Travel demand is sluggish, and it will take a long time for it to recover. The focus is therefore shifting to cash management and streamlining operations. LUV has done an excellent job on both ends.
In addition, with vaccines rolling out, things are looking up for the domestic carrier.
“While the pandemic is not over, we believe the worst is behind us in terms of the severity of the negative impact on travel demand,” CEO Gary Kelly said.
According to the airline, the average core cash burn will fall between $2 million and $4 million a day, a substantial fall from $13 million in the first quarter.
Southwest has a unique advantage versus its peers — the company is mostly a domestic carrier. Data shows domestic air travel is rebounding faster than international travel, though both are growing at a decent clip.
TJX Companies (TJX)
TipRanks 12-Month Consensus Price Target: $77 (7.30% Upside Potential)
We polish off this list with one of the bellwether stocks in the consumer discretionary sector.
TJX Companies is a leading discount retailer that had a decidedly mixed 2020. The negative impact of temporary store closures weighed down results throughout the year. However, analysts are projecting happier times ahead.
According to Refinitiv data, the retailer’s top line will increase by 32.5% and 43.2% in fiscal 2022 and 2023. It fits the broader thesis of cyclical stocks doing well as the economy whirs back to life.
Although the company has underperformed the broader consumer discretionary sector, it can buck that trend. Stores are reopening permanently, and TJX can now add new locations.
Much like Southwest Airlines, TJX is heavily dependent on the United States. Hence, it has more to win from the current situation most of its peers.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.