Target Cyclical Companies When They’re Most Out of Favor

Some traders look for pure growth. Or pure value. Others may look for companies capable of big swings, depending on where they are in their industry cycle. Those looking to target cyclical companies need to start buying when things look down and out, not when things are going well.

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  • By buying at the low point of the cycle, traders and investors alike can catch big swings in traditionally more stodgy companies – and even beat the market doing so.

    Right now, industrial stocks look out of favor with a slowing economy. That can translate into a number of companies, including those that manufacture consumer appliances. That’s why a company like Whirlpool (WHR), which just sold its overseas business, could be a surprise winner here.

    Besides the immediate value from selling part of its business, the company can refocus on its more successful North American market. That may help shares recover from their 25 percent drop last year.

    In the meantime, with the stock trading at 10 times forward earnings, any positive change in the economy could lead to a sizeable move higher for shares.

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  • Action to take: Investors may like shares at or near current levels. Besides being well off their highs, shares yield about 4.5 percent at current levels, and can likely grow more in time.

    For traders, the June $170 calls, last going for about $7.30, offer mid-double-digit returns on a further move higher in the months ahead.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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