There is an interesting topic about investing that many people often overlook, which is cyclical stocks! While most investors tend to focus on growth stocks and dividend stocks, they forget that there are other opportunities that could yield huge profits during an economic recovery. If your portfolio is still unformed but the economy is growing, that might be a sign that you've missed out on cyclical stocks.

First, understand what cyclical stocks are. They are stocks with high volatility, and the company's profit income tends to follow cycles based on supply and demand mechanisms. Sometimes these cycles last 1 year, 5 years, or 10 years, but the timing isn't fixed every time. They are linked to different businesses and industries. When a business experiences growth or decline, the stocks will follow, causing prices and profits to change according to the economic cycle.

The economic cycle is divided into four phases. The first is recovery, where the economy is expanding. Then comes the peak, where the economy is at its highest point in the cycle. This is followed by a downturn, where the economy enters a decline, and finally a trough, which is the worst point of the economic cycle.

Cyclical stock groups are diverse, including shipping and maritime transportation stocks, refinery stocks, agricultural stocks, petrochemical stocks, coal-related stocks, and steel stocks—all of which respond to the economic cycle.

So, which cyclical stocks are interesting in 2025? Nvidia is a leading AI chip company experiencing rapid growth due to increased investments in AI and data centers. The company dominates over 80% of the AI chip market, and profits are expected to increase by 35%. Caterpillar, a manufacturer of construction machinery, benefits from global infrastructure investment plans, especially in the U.S., valued at $1.2 trillion.

Major banks like JPMorgan Chase will benefit from interest rate cuts, which will help loans grow and profits increase by 11%. ArcelorMittal, a global steel producer, is expected to benefit from a recovery in manufacturing and construction, with steel prices potentially rising 15-20%. LVMH, the luxury goods empire, benefits from the purchasing power of the wealthy and the recovery of the Chinese economy, with gross profit margins reaching 65%. Lennar, a leading U.S. homebuilder, will benefit from lower interest rates, with mortgage rates expected to fall below 5.5%.

Additionally, there are other examples of cyclical stocks, such as the semiconductor group including ASML, MediaTek, SK Hynix, Qualcomm, which are benefiting from the tech recovery. The semiconductor market is projected to grow by 15%. Automotive manufacturers like Volkswagen, Hyundai, BMW, BYD are also expected to grow strongly due to the consumer vehicle replacement cycle, with global car sales possibly increasing by 8%.

However, before investing, you must understand that cyclical stocks have specific characteristics. First, they fight against the economic cycle; prices are highly volatile in the short term. Second, production is linked to market demand—when the market grows, prices rise; when the market declines, prices fall. Third, they are highly volatile, creating profit opportunities for skilled investors. Fourth, there are additional risks from government policies, global financial situations, or other economic factors.

The advantages of investing in cyclical stocks include high profit potential due to high volatility, which offers more profit opportunities for experienced investors in the short term. It also helps in predicting market trends over the long term and diversifying the portfolio.

But there are also disadvantages. High volatility means investors face high risks. When prices enter a downturn, investing requires a deep understanding of the economic cycle and stock analysis, along with facing other risks beyond the cycle. It is also not suitable for investors seeking long-term wealth preservation.

Unlike cyclical stocks, there are stocks that perform well regardless of the economic condition, called defensive stocks. These produce essential goods and services for consumers, such as Coca-Cola, Johnson & Johnson, Tesco, Diageo, NextEra Energy, etc.

In summary, if investors understand the types of stocks they are investing in, especially how cyclical stocks are connected to economic conditions and seasons, it will help them better visualize price movements and choose the right timing to invest in cyclical stocks.