10 Best Cyclical Stocks to Buy Now
In this article, we discuss the 10 best cyclical stocks to buy now. If you want to skip our detailed analysis of these companies, go directly to the 5 Best Cyclical Stocks to Buy Now.
Economic crises like the one resulting from the COVID-19 pandemic last year are harder on some stocks than others. These cyclical companies, whose fortunes depend on the ebb and flow of the broader market, offer a sneaky opportunity for investors to either ride the economic boom or unload the burden of losses before a crisis, depending on their assessment of the situation. As the vaccine rollout continues, business activities have almost returned to normal, and stocks of firms that suffered during the pandemic look set to make a comeback.
One stock that investors should keep on their radar is Caterpillar Inc. (NYSE: CAT), the Deerfield-based heavy equipment manufacturer that stands to gain from the increased industrial activity in the post pandemic economy. Caterpillar Inc. (NYSE: CAT) stock has also been given an additional boost by the American Jobs Plan, an initiative of US President Joe Biden to pour hundreds of billions of dollars into American companies for the improvement of infrastructure across the North American country.
Another cyclical stock that is likely to soar with the resumption of business is The Boeing Company (NYSE: BA), the Chicago-based firm that makes and sells aircraft. The Boeing Company (NYSE: BA) will gain from the increase in international travel that will likely lead to more aircraft orders from major international travel hubs like London, Istanbul, and Dubai. A court settlement over controversy involving Boeing 737 MAX will also aid the firm in riding the post pandemic economic recovery.
Retail companies like Costco Wholesale Corporation (NASDAQ: COST) are uniquely placed to take advantage of the situation as well. Even though retail firms were able to weather the pandemic storm better than other companies because of the shift to digital sales, there is much to gain from the reopening of stores that will reopen a large and steady stream of revenue for these firms. Costco Wholesale Corporation (NASDAQ: COST) has already registered double digits sales growth in the US and Canada for the third fiscal quarter.
In addition to the stocks outlined above, certain industries like hotels, restaurants, automakers, banks, and others also have a lot of good options in the cyclical segment. Many of the industries mentioned have been negatively impacted by the coronavirus crisis, while the technology sector has gained from their misfortunes. With normal service resuming, it is likely that these sectors will snatch back some of the growth from technology stocks. Some early signs of this shift towards cyclicals is evident as many tech stocks have been highly volatile the past few weeks.
However, some technological changes are so revolutionary that they cannot be undone. For example, the onset of crypto and fintech has decidedly changed the finance world. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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With this context in mind, here is our list of the 10 best cyclical stocks to buy now.
Best Cyclical Stocks To Buy Now
10. Delta Air Lines, Inc. (NYSE: DAL)
Number of Hedge Fund Holders: 50
Delta Air Lines, Inc. (NYSE: DAL) is a Georgia-based airline carrier founded in 1924. It is ranked tenth on our list of 10 best cyclical stocks to buy now. Delta stock has offered investors returns exceeding 89% in the past twelve months. In addition to air transportation services, the firm markets aircraft maintenance, repair, and overhaul services, and offers vacation packages, aircraft charters, and management programs. The company has a fleet of more than 1,100 aircraft.
On May 19, investment advisory maintained an Overweight rating on Delta Air Lines, Inc. (NYSE: DAL) stock with a price target of $72, implying an upside potential of close to 52%, well above consensus estimates of close to $55.
At the end of the first quarter of 2021, 50 hedge funds in the database of Insider Monkey held stakes worth $1.09 billion in Delta Air Lines, Inc. (NYSE: DAL), down from 58 in the preceding quarter worth $1.05 billion.
Just like Caterpillar Inc. (NYSE: CAT), The Boeing Company (NYSE: BA), and Costco Wholesale Corporation (NASDAQ: COST), Delta Air Lines, Inc. (NYSE: DAL) is one of the best cyclical stocks to buy now.
In one of their investor letters, Miller Value Partners highlighted a few stocks and Delta Air Lines Inc. (NYSE: DAL) is one of them. Here is what the fund said:
"Delta Air Lines Inc. (DAL) declined -1.38% over the period after the initial hit to the stock in 1Q following the outbreak of the COVID-19 pandemic. The company reported 1Q results with EPS of -$0.51, in-line with consensus. The company guided for June revenue to be down 90% YoY and announced another $1B cut to capital expenditures (CAPEX) for a total cut of $3B so far this year. The company ended the quarter with $6B in liquidity and they expect to end the June quarter with $10B in liquidity. Delta held its annual shareholders’ meeting where it noted that it expects to finish the 2nd quarter with over $15B in liquidity with a daily cash burn of $30M getting to breakeven by the end of the year.”
9. TPI Composites, Inc. (NASDAQ: TPIC)
Number of Hedge Fund Holders: 18
TPI Composites, Inc. (NASDAQ: TPIC) is an Arizona-based manufacturing firm founded in 1968. It is placed ninth on our list of 10 best cyclical stocks to buy now. TPI stock has offered more than 132% in returns to investors over the past year. The firm focuses on the manufacture and marketing of composite wind blades and other precision equipment. The firm has business interests in Asia, Europe, Africa, and Central America, in addition to the United States. The firm serves the transportation industry as well as the energy sector.
On May 6, TPI Composites, Inc. (NASDAQ: TPIC) posted earnings results for the first quarter of 2021, reporting earnings per share of -$0.05, beating market predictions by $0.13. The revenue over the period was $404 million, up 13% year-on-year.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Caxton Associates LP is a leading shareholder in TPI Composites, Inc. (NASDAQ: TPIC) with 800,800 shares worth more than $45 million.
In their Q4 2020 investor letter, Wasatch Micro Cap Value Fund highlighted a few stocks and TPI Composites Inc. (NASDAQ: TPIC) is one of them. Here is what the fund said:
"TPI Composites, Inc. (TPIC) was also a large contributor. Occasionally, we’re asked how our holdings measure up to the priorities of the Democratic Party. In general, we believe a strong company will thrive regardless of which political party is in power. But it’s possible some of our holdings will align particularly well with the incoming Democratic agenda. TPI Composites is a good example of a company that’s well-positioned for green-energy initiatives. The company designs and manufactures composite wind blades for wind energy. The stock was up strongly after TPI announced third-quarter net sales had increased 23.5% compared to the year-ago period. We believe some of this increase was due to the resumption of business that had been postponed during the height of the Covid anxiety. We’d like to find more alternative-energy companies to invest in, but it’s often difficult to uncover companies in this segment that meet our valuation and business-quality standards.”
8. The TJX Companies, Inc. (NYSE: TJX)
Number of Hedge Fund Holders: 63
The TJX Companies, Inc. (NYSE: TJX) is a Framingham-based departmental store chain founded in 1987. It is ranked eighth on our list of 10 best cyclical stocks to buy now. TJX stock has returned more than 28% to investors over the course of the past twelve months. The firm focuses on off-price apparel and home fashion retail. Some of the products it sells include footwear, furniture, rugs, lighting products, giftware, gourmet, and fine jewelry, among others. TJX owns and runs more than 3,000 stores in the United States.
The TJX Companies, Inc. (NYSE: TJX) posted earnings results for the first quarter of 2021 on May 19, reporting earnings per share of $0.44, beating market predictions by $0.13. The revenue over the period was more than $10 billion.
At the end of the first quarter of 2021, 63 hedge funds in the database of Insider Monkey held stakes worth $2.3 billion in The TJX Companies, Inc. (NYSE: TJX), down from 68 in the preceding quarter worth $2.2 billion.
Giverny Capital, in their Q1 2021 investor letter, mentioned The TJX Companies, Inc. (NYSE: TJX). Here is what the fund said:
“We’re pretty happy with the current portfolio and so were not very active during the quarter. Our only consequential decision in the first quarter was to exit the off-price retailer The TJX Companies in January. My prior firm owned TJX for most of the past 20 years and enjoyed appreciation on the order of 20 times the original purchase price.
TJX is a great company, but the growth rate has slowed in recent years and the operating margin has been under pressure, mainly from rising wages for store workers. When the pandemic hit, I bought the stock for GCAM in the belief that if the US fell into a prolonged recession, TJX would be a winner because of its extreme value position.
The US didn’t fall into a prolonged recession. Rather, many consumers are flush with cash thanks to government relief programs. But brick-and-mortar stores are losing out to online competitors for reasons of safety and convenience. TJX has fared much better than most of its competitors during this time and should continue to do so, thanks to its model of buying inventory close to need and reacting to what is happening in the marketplace rather than trying to create hot product. But the stock rose about 50% in the few months we owned it and that increase seemed to price in a complete recovery and more. We sold in early January.”
7. The Walt Disney Company (NYSE: DIS)
Number of Hedge Fund Holders: 134
The Walt Disney Company (NYSE: DIS) is a California-based mass media and entertainment firm founded in 1923. It is placed seventh on our list of 10 best cyclical stocks to buy now. Disney stock has returned more than 52% to investors over the course of the past year. The company owns and runs theme parks, film studios, broadcast stations, and an internet streaming service. Some of the famous brands it owns include ESPN, National Geographic, Pixar, and Disneyland, among others.
On May 13, The Walt Disney Company (NYSE: DIS) reported earnings for the second fiscal quarter, posting earnings per share of $0.79, beating market estimates by $0.53. The revenue over the period was more than $15 billion, missing market predictions by over $300 million.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in The Walt Disney Company (NYSE: DIS) with 10 million shares worth more than $1.9 billion.
Just like Caterpillar Inc. (NYSE: CAT), The Boeing Company (NYSE: BA), and Costco Wholesale Corporation (NASDAQ: COST), The Walt Disney Company (NYSE: DIS) is one of the best cyclical stocks to buy now.
Harding Loevner, in their Q4 2020 investor letter, mentioned The Walt Disney Company (NYSE: DIS). Here is what the fund said:
“One of the original constituents of the Nifty Fifty holds a place in our portfolio today. When we bought Disney three years ago, we wrote that “we view Disney theme parks in the US, Europe, and China as resistant to online substitution.” We did not reckon on a pandemic, which closed all of them, and sent all of usto our couches. Disney, however, wasready for us, brilliantly illustrating the importance of management foresight and change management. Or, as Louis Pasteur said, “chance favors the prepared mind.”
A century after its founding in 1923, Disney is in the middle of a bold shift from its legacy media networks & entertainment model—with cable TV, theme parks, and theater films dominating its earnings—to a direct-to-consumer streaming media model. The keys to Disney’s transition: matchless storytelling, coupled with financial strength. The company reliably creates content that people all over the world are eager to consume. It also hastened spending on original content to attract subscribers to its new streaming platform. These factors have allowed Disney to weather the pandemic having expanded its direct engagement with customers. Such connections yield a rich harvest of insights used to customize offerings on a mass scale, reinforcing that engagement in a virtuous circle and thereby raising the lifetime value of each customer. Subscribers to Disney+ reached 86.8 million one year after launch, compared to the 60 – 90 million management projected to reach in 2024. To be sure, Netflix, Apple, and Amazon remain formidable competitors in new-era streaming entertainment (mind what we said about everyone standing up at once), but there’s fight left in this old dog.”
6. Brown-Forman Corporation (NYSE: BF-B)
Number of Hedge Fund Holders: 35
Brown-Forman Corporation (NYSE: BF-B) is a Kentucky-based company that makes and sells alcoholic beverages. It was founded in 1870 and is ranked sixth on our list of 10 best cyclical stocks to buy now. The stock has offered investors returns exceeding 21% in the past year. The products that the firm sells include spirits, wines, whiskey spirits, cocktails, vodkas, tequilas, champagnes, brandy, bourbons, and liqueurs, among others. The brands it owns include Jack Daniel's, Woodford Reserve, and Canadian Mist, among others.
Brown-Forman Corporation (NYSE: BF-B) is a good option for income investors as the firm gives a healthy dividend to shareholders. On May 27, the company declared a quarterly dividend of $0.1795 per share, in line with previous. The forward yield was 0.9%.
At the end of the first quarter of 2021, 35 hedge funds in the database of Insider Monkey held stakes worth $1.4 billion in Brown-Forman Corporation (NYSE: BF-B), up from 29 in the preceding quarter worth $1.5 billion.
Just like Caterpillar Inc. (NYSE: CAT), The Boeing Company (NYSE: BA), and Costco Wholesale Corporation (NASDAQ: COST), Brown-Forman Corporation (NYSE: BF-B) is one of the best cyclical stocks to buy now.
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Disclosure: None. 10 Best Cyclical Stocks to Buy Now is originally published on Insider Monkey.
