I've just noticed that many people still stick to the traditional way of following growth stocks and dividend stocks, which causes them to miss out on huge profit opportunities. This is what is called cyclical stocks. If the economy is recovering but your portfolio is still dull, it’s a sign that you may have already missed this type of stock.

What exactly are cyclical stocks? They are stocks whose revenue and profits fluctuate in cycles, rising and falling according to the economic cycle. Not because the company has problems, but because it depends on supply and demand. Sometimes the cycle lasts a year, sometimes five years, but it’s not fixed. It follows the rhythm of business and the real economy.

When the economy expands (Recovery phase), it’s when cyclical stocks start to rise, followed by the peak where profits surge, then enters recession, and hits the trough. If you can read this chart, you’re already halfway there.

Talking about cyclical stocks, what are some examples? We often see them in industries like maritime transportation, oil refining, agriculture, coal, steel, and semiconductors. These are all highly volatile cyclical stocks, but they also offer huge profit opportunities.

What’s interesting now is that we are in an economic recovery phase, causing some cyclical stocks to start showing potential. For example, Nvidia, which dominates over 80% of the AI chip market, continues to grow strongly. Caterpillar benefits from global infrastructure projects. ArcelorMittal, a major steel producer, is seeing steel prices recover.

And what cyclical stocks are still worth watching? Banks like JPMorgan Chase are good examples. When interest rates fall, loans grow, and profits follow. Homebuilders like Lennar benefit from lower interest rates and increased demand for homes. LVMH, the luxury goods giant, remains bright because the wealthy never stop buying expensive items.

What you need to know before investing in cyclical stocks is that they are highly volatile and not suitable for the faint-hearted. But if you can read the economic cycle, you’ll have the information to make decisions. The advantage is huge profit potential; the downside is the need to be cautious of external risks, such as government policies, global situations, or unforeseen events.

Unlike defensive stocks like Coca-Cola or Johnson & Johnson, which perform well in all phases of the cycle, cyclical stocks require precise timing. But if you get it right, profits will follow.

In summary, what are cyclical stocks? That’s a good question because understanding the type of stocks you invest in helps you develop smarter trading plans, whether it’s choosing entry and exit points or managing risks. Study more about economic cycles and market signals, and you’ll see opportunities others don’t notice.