Cyclical stocks typically follow the ups and downs of an economy. Virtually every company is somewhat affected by economic forces, but the discrepancy varies significantly. For example, a consumer goods business is less likely to be affected than a cruise line operator. Nevertheless, the best cyclical stocks can be an interesting way to play the broader economy.
The pandemic’s end has put the spotlight on cyclical investment, which typically performs well during an economic boom. However, the post-pandemic scenario is far from conducive for cyclical stocks, with inflation and interest rates near record highs.
However, a recent report from the National Retail Foundation showed that retail sales growth is expected to average between 6% to 8% for the year. Hence, cyclical stocks could gain a lot of momentum in line with the broader economy.
|DIS||The Walt Disney Company||$98.95|
|DKS||Dick’s Sporting Goods||$91.85|
Expedia Group (EXPE)
Expedia Group (NASDAQ:EXPE) is a leading online travel platform provider, operating some of the most popular travel websites. After a couple of challenging years due to the pandemic-led restrictions, the platform points to improving trends in the sector.
Though it faces near-term risks due to inflation, its top and bottom-line results should head northward with the return of international travel.
The World Tourism Organization published its report covering the first quarter of 2022, showing an incredible 182% improvement in travel demand numbers. Moreover, it expects the momentum to continue in the upcoming quarters.
These positives have been reflected in the company’s operating results, with first-quarter bookings coming in at $24.4 billion, a 58% increase from the prior-year period. Moreover, the 81% increase in sales helped significantly narrow down losses. Expedia’s fundamentals will continue to wow investors if it can continue on this trajectory.
Sunrun (NASDAQ:RUN) is one of the most recognizable names in residential solar energy systems provision. As per the latest quarterly filing, it boasts a massive customer base of more than half a million, which continues to grow with every quarter.
It’s coming off a strong quarter, with a 20% bump in its customer base to 29,463. Moreover, with a 39% increase in customer orders, it raised its full-year guidance by 25% versus the previous forecast for 20% growth. The management doesn’t seem overly concerned about inflation, as it feels optimistic about passing on the higher costs to its customers.
Moreover, the current energy crisis is proving remarkably beneficial for Sunrun as it looks to drive more people toward its product. Additionally, its main market in California is set to experience unreliable power this summer.
Polaris (NYSE:PII) is one of the more cyclical stocks. It is one of the oldest brands in Powersports, manufacturing products such as all-terrain vehicles and snowmobiles.
In recent years, it has expanded the production of motorcycles, ATVs, and boats to increase its market share further and reduce its business’s seasonality. Moreover, it offers dependable dividend growth and a wide economic moat with a robust balance sheet.
The surge in outdoor recreational demand during the pandemic positively impacted its operating results. However, even without the tailwinds, the business is expected to continue growing by double-digit margins.
Analysts at Refinitiv expect annual revenues to grow by 11.7% and 15.5% in the next couple of years. Moreover, this dividend aristocrat has increased its payouts for the past 18 years, making it a highly attractive income stock.
Steel producer Nucor (NYSE:NUE) is positioned extremely well in its sector with strong near-term prospects despite the headwinds.
Steel demand is typically linked with the broader economy, and demand tends to decline during a recession. It’s not the best time for Nucor to operate, but its results have been extraordinary of late, which points to more upside ahead.
It’s posted record earnings in its last quarter and is on track for similar success in the second quarter. Moreover, it’s been generating massive cash flows, raking in $2 billion in the first quarter alone. It’s likely to generate similar numbers in the second quarter, which will allow for it to increase its shareholder rewards greatly.
At the current pace, I expect double-digit returns for its stockholders, and its cheap price allows new investors to jump in on the fun.
EPR Properties (EPR)
EPR Properties (NYSE:EPR) is the second-largest real estate investment trust (REIT) in the United States, with a portfolio that covers 281 properties across more than 40 operators. Most of its income is derived from experiential tenants, making it eCommerce resistant.
Perhaps the major concern among investors is that EPR’s portfolio is mainly dedicated to movie theatres. However, the reality is that it has diversified away from the segment, and more than 50% of rents come from resorts, education, and family attractions. Hence, it has effectively shielded itself from the seasonality stemming from its portfolio.
EPRs portfolio has posted a robust recovery, with its annual funds from operations per share doubling on a year-over-year basis from 50 cents to $1.16 in the first quarter. Moreover, it upped its AFFO per share guidance by 1.6% to $4.47 at the midpoint.
The Walt Disney Company (DIS)
Entertainment giant The Walt Disney Company (NYSE:DIS) is one of the most popular businesses in the world. It derives most of its income from a highly diversified revenue base, enabling the business to thrive in the toughest of conditions.
A big positive for Disney is that its cyclical domestic parks business is performing impressively again. It recently posted record quarterly revenue and operating income from its parks segment. Guest spending in the most recent quarter was 40% higher than in the same quarter in 2019. Moreover, it’s nowhere near its full strength and has plenty of room to grow.
If inflation persists, there is a looming risk that its discretionary segments could experience a slowdown in the coming months. However, the losses will be more than offset by the rampant increase in Disney’s streaming services. Disney+ has 205 million subscribers and could potentially reach 230 million and 260 million subscribers by 2024.
Dick’s Sporting Goods (DKS)
Dick’s Sporting Goods (NYSE:DKS) is the number one sporting goods retailer, operating over 800 specialty and flagship stores across the U.S. Moreover, it sells its products through its market storefronts and eCommerce websites that combine to create an effective omnichannel experience.
Last year, its adjusted earnings per share increased more than 50% to $15.70. However, the spike in its supply chain costs has significantly hurt retailers hitting the company hard. Consequently, its adjusted earnings fell 25% on a year-over-year basis in the first quarter.
Nevertheless, full-year guidance calls for comparative sales to be down 8%. Moreover, adjusted earnings are expected to fall between $9.15 to $11.70. It puts the stock’s valuation at just eight times earnings. Hence, it offers an excellent entry point for long-term investors.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.