Honestly, many people when they see the stock market growing tend to only look at stocks that continuously increase or dividend stocks, but they miss that there is a group of stocks that can make a lot of profit during the economic recovery. That is the cyclical stocks. If the economy is rising but your portfolio remains stagnant, you might have already missed this group.

What exactly are cyclical stocks? They are called Cyclical Stocks, meaning stocks whose prices and profits fluctuate according to the economic cycle. Sometimes it could be a 1-year, 5-year, or 10-year cycle. But it’s not fixed; it moves mainly based on demand and supply mechanisms. When the economy expands, these stocks explode; but when the economy slows down, their prices fall mercilessly.

Understanding this cycle is very important. To simplify, it is divided into 4 phases. The first is Recovery, when the economy is rebounding, stock prices start to rise. Then comes the Peak, the highest point of the cycle. Next is Recession, when the economy is heading downward. The last is Trough, the period when the economy is at its worst.

Cyclical stocks are often in industries such as shipping, oil refining, agriculture, petrochemicals, coal, and steel—all of which are highly sensitive to economic conditions.

Talking about interesting stocks in this cycle, Nvidia is the first example. It’s an AI processing chip company that dominates 80% of the market. Due to soaring AI investments, profit is expected to grow 35% in 2025. P/E is at 40 times, but PEG Ratio is only 1.2, which is considered reasonable. The company has over $20 billion in cash and almost no debt.

Caterpillar is another example. A giant manufacturer of construction machinery benefiting from the $1.2 trillion Infrastructure Bill. Revenue is expected to grow 8-10%. P/E is only 15 times. Backlog is high at $30 billion, and it has a 25-year history of paying dividends.

Banks like JPMorgan Chase are also cyclical stocks. When the Fed cuts interest rates, loans grow, and profits are expected to increase by 11%. P/E to Book is only 1.8 times. ROE is high at 16%. CET1 Ratio stands at 14.5%.

ArcelorMittal, a global steel producer, will benefit from the revival of manufacturing and construction sectors. Steel prices are expected to rise 15-20%. P/E is just 5 times, very low compared to the average. Free Cash Flow Yield is high at 15%. The company is also investing in clean steel technology to reduce CO2 emissions by 30% by 2030.

LVMH, the luxury goods empire with 75 brands including Louis Vuitton, has a gross profit margin of 65%, higher than the industry average. It has been growing steadily for 10 years. The founder owns more than 40%, showing strong confidence.

Lennar Corporation, a leading homebuilder, will benefit from falling interest rates. Mortgage rates are expected to drop below 5.5%. P/E is only 10 times. It holds 300,000 land plots, with a profit margin of 21%. It builds homes 15% faster than competitors.

Additionally, the semiconductor industry with companies like ASML, MediaTek, SK Hynix, Qualcomm is expected to grow 15% in 2025. Car manufacturers like Volkswagen, Hyundai, BMW, BYD also have strong growth prospects, with global car sales projected to increase 8%.

Regarding the advantages of cyclical stocks, the profit opportunities are high due to price volatility. Skilled investors can make significant short-term gains. They can use economic cycle data to make investment decisions aligned with the situation and help diversify their portfolios.

But there are also disadvantages. High volatility means investors are vulnerable to short-term losses. Deep understanding of the economic cycle and good analysis are required. They are also exposed to external factors such as government policies, the global economy, and are not suitable for long-term wealth preservation.

Unlike defensive or non-cyclical stocks, which produce essential consumer goods, such as Coca-Cola, JNJ, Tesco, Diageo, NextEra Energy, that perform well regardless of economic conditions.

In summary, if investors understand the types of stocks they invest in, each group will have different trading strategies. A fundamental understanding of cyclical stocks and how they relate to seasonal or situational factors affects demand factors, helping to better visualize price movements and choose appropriate timing for investing in cyclical stocks.