Cyclical Stocks In Recession Are Full Of Opportunities.

When the economy began to decline, savvy capital managers began investing in cyclical businesses.

The aluminum industry, steel industry, paper industry, automobile manufacturing industry, chemical industry and air pport industry all rise and fall with the boom and depression of the economy.

The key to this problem is that as a fund manager, we must always take steps before the earth people begin to act, and buy these stocks in time. This is the eternal pursuit.

Now I find that for these cyclical industries to be revived, Wall Street is also getting involved earlier and earlier.

Low market

For most stocks, low price earnings ratio is a good thing, but cyclical stocks are not.

If the P / E ratio of the cyclical companies starts to become very low, this is probably a sign that they are near the end of the climax.

Careless investors may be unaware of continuing to hold stocks, because the company is still operating well and the company's income is still high, but this situation will change immediately.

Smart investors are already selling stocks at this time to avoid the risk of plunging.

When people start selling large amounts of stock, the stock price may change in one direction only.

When the share price falls, the P / E ratio decreases, and the cyclical stock will show stronger allure than the past.

Inexperienced investors will pay an expensive price.

Next

For most stocks, high P / E is a bad thing, but for cyclical companies, it is better.

Usually, it means that the company is coming out of the most difficult predicament. Soon business will improve and revenue will exceed analysts' expectations. Fund managers must start building positions resolutely.

In this way, stock prices will go steadily higher.

As long as the economy starts to slump, I will focus on this kind of stock, because I always do positive thinking and assume that the economy will always get better without a dim report.

Having a recession.

Without the working experience of related industries (copper, steel, automobile manufacturing, paper industry, etc.), it is quite dangerous to invest in such cyclical companies.

If you are a plumbing worker and know the ins and outs of the copper tube price, then you will have a higher chance of earning Phelps dodge stock than a MBA.

When I noticed the Phelps dodge company in January 1992, the cheap stocks before me really couldn't turn a blind eye to me.

I asked my plumber, and he proved to me that the price of the copper pipe is rising.

The first issue for investment cyclical companies is whether the company's balance sheet is robust enough to withstand the next downturn.

I found this information from the latest annual report at that time.

The company has net assets of US $1 billion 680 million and total liabilities (excluding cash) is only US $318 million.

Obviously, no matter how the copper price changes, the company will not go bankrupt.

Many of the weaker competitors will be forced to close their mines and leave home, and Phelps dodge may have to increase capital.

Regardless of future capital expenditure and its subsidiary business changes, Phelps Dodge's fate is always closely related to copper prices.

The basic mathematical calculations are as follows: Phelps dodge produces 1 billion 100 million pounds of copper per year.

If copper price increases by L cents / pound, the pre tax profit will increase by 11 million US dollars.

On the basis of 70 million issued shares, the profit of $11 million will be increased by 10 cents per share, so the copper price will rise 1 points per share and the earnings per share increase by 10 cents, and if the copper price rises 50 cents per pound, earnings per share will increase by 5 dollars.

If people can know second years and third years

Auto stocks also have cycles.

The shares of automobile manufacturers are often regarded as blue chips, but in fact they are typical cyclical stocks.

25 years after buying a car stock is like flying over the Alps, you may get some benefits from it, but it is far less than the benefits of all the rough and bumpy hikers.

In 1991, the second year of the recession, auto share prices had fallen to about half of the recent high. And with the general decline of car sales, car and truck dealers can only play cards to kill time.

At this point, I decided to reexamine auto stocks.

As long as no one has invented reliable household air cushion vehicles, cars will definitely continue to become the most favorite personal assets of Americans. Sooner or later, we will have to change our cars. For a long time, we will be tired of old cars, or because the old car brake is out of order, and we can see the road through the rusty chassis.

When to buy auto stocks, there is an indicator of second-hand car prices.

When used car dealers reduce their prices, it means that they are having difficulties selling cars, and a market that looks bad on them may be even worse for new car dealers.

The recovery of second-hand car prices is a precursor to the improvement of automobile manufacturing performance.

Finding out the auto industry's time cycle is only half done, and the other half is selecting the most prominent companies.

My choice is just the opposite of 1982, and GM will beat other companies.

Although the closure of some factories will cause thousands of employees to lose their jobs, it will also reduce GM's cost at the least profitable business.

The company does not need to defeat Japan again, nor do it have to rush back to car buyers in the US market.

GM is distracted, its market share has shrunk from 40% to 30%, but this is still higher than the total market share of all Japanese automakers.

Even if GM can only attract 25% of American car buyers, the automobile production department can contribute to revenue by simplifying management and reducing expenditure (which has already acted).

observation

Resilient cyclical stocks

Cyclical stocks appear to be the most common stocks.

If the stock market is a barometer of economic life, it should also reflect the cyclical fluctuations of the economy.

From the beginning of Kondratieff to the great bear Pete, they have eloquently pointed out that economic development has its own ups and downs. "Destructive development" has made the elimination of some old equipment, old technology and even old system inevitably accompanied by the decline of some enterprises and the reduction of demand for raw materials.

With the mechanism of market metabolism playing a role, new enterprises with vitality are pushed to the front desk, and more people begin to have confidence in the bright future of the economy. As a barometer, the stock market will be hot again.

The reason why the author does not hesitate to describe the changes in the business cycle is that many investors do not understand the concept of "cycle".

There are bound to be many misunderstandings about our investment in cyclical stocks.

Whether or not the macroeconomic operation is in the period of inflation or recession, there are also many puzzling aspects from the nature of cyclical stocks.

For example, why the cyclical stocks with high price earnings ratio are not suitable investment targets.

Here, the author puts forward a right of opinion.

Because the main business of cyclical stocks is directly related to the economic boom, they are essentially stocks with very high beta coefficients. In other words, they are super aggressive. When the market is rising, the gains will go far beyond the index, and vice versa.

If the long-term trend of a cyclical stock is regarded as a more "ups and downs" version of the stock index, then it is obvious that just like the 2006-2007 years of China's stock market, the rise of popularity has created the effect of making money and pushed up the share price, and the increase of the p / E rate illustrates the optimism of the market to the economic prosperity, which is the index that the share price will further rise, and it should not be understood in turn.

In this case, even a continuous increase in interest rates will not have a substantial impact on the market, and inflation will remain high.

In the ensuing recession, everything will be reversed, even if the interest rate cuts can not save the confidence that is more valuable than gold.

Cyclical stocks cover industrial or daily life as consumables or bulk consumer goods, such as energy, metals and other resources, as well as real estate and automobile stocks.

It is visionary for Peter Lynch to classify auto stocks into cyclical stocks. This shows that by observing the price of resources around the place and the speed of people's renovation and upgrading, the replacement of cars can reflect people's expectations for the future. That is the right way to estimate the economic cycle and a good way to predict the timing of cycle buying.