Many people are attracted to growth stocks and dividend stocks but forget to consider stocks that can generate huge profits during an economic recovery. These are cyclical stocks. If the economy is growing but your portfolio isn't moving, it might be because you don't truly understand cyclical stocks.

In fact, cyclical stocks are stocks whose revenues and profits fluctuate according to the economic cycle. It's not because the companies are bad, but because these businesses depend on supply and demand. During economic recovery, demand surges, and prices and profits follow. During downturns, everything declines.

The economic cycle is generally divided into four phases: the recovery phase, where the economy expands; the peak, where growth is at its highest; the recession, where it declines; and the trough, where the economy is at its worst. Cyclical stocks are typically found in industries such as shipping, oil refining, agriculture, steel, and coal.

Talking about interesting stocks in 2025, Nvidia dominates over 80% of the AI chip market, with expected profit growth of 35%. Despite a high P/E ratio, the PEG ratio is only 1.2, which is considered reasonable. It has over $20 billion in cash and almost no debt.

Caterpillar, a manufacturer of construction machinery, benefits from infrastructure investment plans. Revenue is expected to grow 8 to 10 percent. P/E is only 15 times. It has a backlog of $30 billion and has paid dividends for 25 years.

JPMorgan Chase, a major bank, will benefit from falling interest rates. The Fed has started lowering rates at the end of 2024 and is expected to cut another 3 to 4 times in 2025, leading to increased lending and an 11% profit growth. Price-to-Book ratio is only 1.8, with a high ROE of 16%.

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

LVMH, a luxury goods empire with over 75 top brands, benefits from the purchasing power of the wealthy and China's economic recovery. Gross profit margin is as high as 65%. It has experienced continuous growth for 10 years.

Lennar, a leading U.S. homebuilder, will benefit from falling interest rates. Mortgage rates are expected to drop below 5.5%. Millennials are entering first-time homebuyer age. P/E is only 10. It has more than 300,000 acres of land reserves and a profit margin of 21%.

Additionally, other cyclical stocks include semiconductor companies like ASML, MediaTek, SK Hynix, and Qualcomm. The semiconductor market is expected to grow 15%. In the automotive manufacturing sector, Volkswagen, Hyundai, BMW, and BYD are projected to grow strongly. Global car sales are expected to increase by 8%.

However, before investing in cyclical stocks, you must understand that these stocks are highly volatile. Prices fluctuate clearly with the economic cycle. They require skillful analysis and risk management because they face additional risks from government policies, global financial conditions, and other economic factors.

The advantage of cyclical stocks is the high profit opportunity because volatility comes with increased profit potential. Experienced investors can make significant gains in the short term. They can also predict market trends over the long term using economic cycle data and help diversify their portfolios.

The downside is that high volatility increases risk. Less resilient investors may face losses in the short term. It requires deep understanding of economic cycles and thorough analysis of stocks and markets. It may not be suitable for those seeking long-term wealth preservation.

Unlike defensive stocks or non-cyclical stocks, which produce essential goods and services for consumers such as utilities, healthcare, beverages, food, and energy. Examples include Coca-Cola, JNJ, Tesco, Diageo, and NextEra Energy, which perform well regardless of the overall economic condition.

In summary, if investors understand the types of stocks they are investing in, there are many opportunities. Each stock category offers different trading strategies. Understanding the fundamentals of how business relates to seasonal or cyclical factors, and how demand and supply are affected, helps better anticipate price movements and choose appropriate timing for investing in cyclical stocks.