Investors Are Dumping Tech Stocks In Exchange For Cyclical Stocks; Should You Follow Suit?
Cyclical stocks have been on investors’ radar this week. The Dow Jones Industrial Average index continued climbing on Tuesday’s intraday trading while Nasdaq tumbled. Investors seem to be rebalancing their portfolio by going light on tech stocks and increasingly adding their positions into these top cyclical stocks. The question is, would it be wise to jump in?
“The leadership rotation away from technology and Fangs toward broader market plays including small caps, cyclical sectors and international stocks strengthened for a second consecutive day,” Jim Paulsen, chief investment strategist at the Leuthold Group.
Cyclical Stocks Continue To March Higher; Time To Buy?
So, what exactly is a cyclical stock? Cyclical stocks are known for following the cycles of an economy through expansion, peak, recession, or in today’s case, recovery. That said, cyclical businesses perform well during economic expansions but typically see sales and profits fall significantly during recessions and other rough economic times. For instance, American Airlines (AAL Stock Report) and General Motors are two examples of cyclical companies that would do well when the economy is in a recovery stage.
Every recession and economic downturn is different. A pandemic-induced recession is unprecedented in modern history. Industries such as travel and banking are a few examples of the battered industry during the coronavirus pandemic. However, because of the nature of the pandemic, top tech stocks have performed incredibly well. You see, many of them provide services online, which means that they actually benefited from the pandemic. But with Pfizer’s (PFE Stock Report) vaccine news, investors’ hope for a rebound in economic activity can be seen by the sell-off of tech stocks and the surge in cyclical stocks. With all that in mind, do you have a list of cyclical stocks to watch for more upside in the near-term?
- Looking For The Best Stocks To Buy Now? 3 Epicenter Stocks To Watch
- 3 Top EV Stocks To Watch Right Now; 2 Started The Week On A Strong Note
Top Cyclical Stocks To Watch: General Motors
General Motors (GM Stock Report) is one of the top cyclical stocks to watch in the market right now. The legendary automaker’s stock price reached a new 52-week high on Tuesday. This came after UBS increased its 12-month price target for GM stock to $50 a share, implying a 22% potential upside. In a recent test by Consumer Reports, GM’s Super Cruise technology has outshined Tesla’s Autopilot, the latter finishing a “distant second”. GM may be an old dog in the industry, but this old dog can definitely learn and even master new tricks.
Don’t forget that the company has recently revealed the comeback of Hummer. And this time, it’s all-electric. The vehicle has a 350-mile range, 1,000 horsepower, and up to 11,500-pound-feet of torque. And with a starting price of $80,000, it’s easily twice the cost of a gas-powered pickup. Nevertheless, the resurrection of the legendary brand has certainly generated enough attention.
General Motors has an impressive lineup of EVs. The company’s Chevrolet Bolt and Chevrolet Volt are among the best selling EVs in the US. Both of the models are much more affordable compared to Tesla’s models. Meanwhile, the truck is expected to go into production late next year. GM’s diversified range of options would certainly be welcome news for customers. With the industry stalwart setting its sights on the future, will GM stocks continue to run up this year?
Top Cyclical Stocks To Watch: Kroger Inc.
Kroger (KR Stock Report) has evolved from just being a pure brick & mortar retailer to an omnichannel entity. The company is slated to report its third-quarter earnings on December 3. According to the U.S. Census Bureau, grocery store sales have surged 13% higher through the end of July. This bodes well with Kroger’s fiscal second-quarter report which saw a 127% jump in e-commerce revenue. The company expects the shift to online channels will be a “lasting and structural” change in its business model.
“Even before the pandemic, our digital business had become a tailwind”. “That pandemic certainly has accelerated customer preference for seamless offerings. Our customers are increasingly turning to our eCommerce solutions for their groceries and household essential needs. Many of our customers are ordering groceries online for the first time, as a result of COVID-19. And the majority of them tell us they plan to continue to do so in the future.” -Kroger CEO Rodney McMullen
With years of digital transformation finally paying off as shoppers opt for online sales tools and pickup-and-delivery options, KR stock has been off to the races this year by climbing around 11.3% year to date as of this writing. The stock could move higher if there are signs of some continuation of its momentum from the first quarter. Besides, should consumers’ preference for online shopping stocks around after the pandemic, Kroger would be in a strong position to benefit.
Top Cyclical Stocks To Watch: Huya Inc.
Under the radar, Huya Inc. (HUYA Stock Report) could be one of the best cyclical stocks to buy. The company is the largest online game streaming platform in China. Huya’s plethora of rich and dynamic content combined with technological innovation makes it the ideal entertainment platform for the younger generation in China. People can stream video games on different platforms such as console, computer, and mobile. Additionally, it operates Nimo TV which is a game streaming platform in Southeast Asia and Latin America. While its services are free to use, users will have to pay to access premium content and features, thereby contributing to its cyclical nature. The company reported its third-quarter earnings after closing bells on Tuesday. Total revenues increased by 24.3% to $414.6 million from the same period last year.
“Despite a relatively shorter summer vacation period due to the impact of COVID-19 in China, we were still able to increase our user base by offering enriched content and enhanced experience, as well as through our deepened collaboration with Tencent,” said Mr. Rongjie Dong, Chief Executive Officer of Huya. “In the third quarter of 2020, average MAUs of Huya Live reached 172.9 million. The continued user growth momentum sets a solid foundation for the strengthening of user engagement and incremental monetization opportunities.”
At a price to sales ratio of just under 4 times, Huya is trading at a bargain in comparison to its peers. That’s especially true considering its growing profitability. The company’s net income attributable was $37.3 million, representing an increase of 105.3% year-over-year. Huya’s position in the Chinese market will certainly strengthen once its merger with rival DouYu (DOYU Stock Report) is completed in the first half of 2021. With a bigger share of the market going forward, is HUYA stock worthy of your attention?