In a more favorable environment, cyclical stocks can cash in.
In Wall Street parlance, 2022 was decidedly a “risk off” year. Investors largely avoided the one-time growth darlings of technology and instead took shelter in slow-and-steady consumer staples stocks or utility companies that could hang tough amid the volatility. As we turn the page on 2023, however, some traders are wondering if the worst is over — and whether it’s time to bet on an economic upturn instead of banking on more belt tightening. The jury is out whether we’re in store for a recession or a recovery in the months ahead. But if you’re willing to go a bit more “risk on” with your portfolio in the hopes of growth, here are seven cyclical stocks to buy now.
American Airlines Group Inc. (ticker: AAL)
Airline travel is a very cyclical business, as consumers and executives alike have to be confident about their finances to book big-ticket trips or to book travel more often. AAL is uniquely positioned to benefit from any rise in travel trends thanks to the current black eye for rival Southwest Airlines Co. (LUV) in the wake of historic travel disruptions shortly after Christmas. Between that and fourth-quarter numbers that showed better-than-expected performance on robust demand, this is a transportation stock to watch. Recent strength should serve the company well as we sort things out, but should a cyclical spending boom materialize, then AAL will be flying high in 2023.
Halliburton Co. (HAL)
Oilfield service giant Halliburton is a cyclical stock in two important ways. Firstly, it rises and falls based on the willingness of oil companies to lean on HAL to help them bring reserves to market; and secondly, because oil demand generally rises and falls based on economic activity. So if 2023 winds up to be a year of growth and consumption, energy use will be strong — as will bookings for this oil and gas contractor. While some energy stocks have been fading lately, HAL has soared since its October lows with an amazing run of more than 40% in the last 90 days. That bodes well for the fate of this $38 billion energy company as a new year gets underway.
Lowe’s Cos. Inc. (LOW)
When it comes to home improvement retailers, there’s pretty much a duopoly in the U.S. right now between Home Depot Inc. (HD) and its competitor Lowe’s. But LOW stock gets the edge right now thanks to a more attractive valuation — a forward price-to-earnings ratio of about 15 compared with HD’s multiple of 19 — as well as slight outperformance over the last month or so as we move into the new year. Remember, Lowe’s is no slouch even though it is slightly smaller than Home Depot. The company still boasts a market valuation of about $130 billion and roughly 2,000 hardware stores nationwide to ensure it has a firm connection to any cyclical rise in housing or real estate markets.
Nike Inc. (NKE)
One of the most dominant consumer brands on the planet, Nike has a clear connection to consumer trends. After all, it’s likely the first name on many athletic wear shopping lists when times are good … but the premium price tags of Nike are hard to justify when times are tough. Nike is a little more than halfway through its fiscal year despite the fact that it’s January, and projections for fiscal year 2023 are for about 7% revenue growth. That’s not particularly inspiring — but any cyclical recovery in consumer spending, both at home and around the world, will undoubtedly lift NKE stock in the months ahead. In the meantime, this $200 billion powerhouse isn’t at risk of going away even if times remain lean for some households.
Salesforce Inc. (CRM)
Like many tech titans, $150 billion cloud-based customer management platform Salesforce took a big tumble last year. However, it’s important to understand that while it was the first high-tech entrant in its field, the core focus of Salesforce is actually helping your sales force. That means a cyclical uptrend that results in improved enterprise spending and a more favorable environment for marketing and sales will naturally mean more business for CRM. After its recent troubles, the stock has now rolled back to a more reasonable valuation — and if and when we see brighter days for the economy that make it easier to sell, we will see businesses of all stripes lean on Salesforce to help them close new deals.
Tapestry Inc. (TPR)
Tapestry is the luxury brands company behind Coach, Kate Spade and Stuart Weitzman products and apparel. Product lines include handbags, fashion accessories, jewelry, eyewear and fragrances for sale at department stores. The company also operates nearly 2,000 retail locations that sell these in-demand goods directly to consumers. This powerful brand family could benefit handily from any uptick in consumer spending over the next year. Above that, the company has been aggressively buying back shares as part of a plan to return $1 billion to shareholders in 2023 through dividends and share repurchases. That means if things go well for consumers in the new year, it may go very well for TPR stockholders, too.
TJX Companies Inc. (TJX)
TJX is the parent of a family of retail stores including apparel and home fashions retailers HomeGoods, TJ Maxx and Marshalls. The company is quite sensitive to household spending trends, but based on bullish Wall Street commentary lately, it seems that this is a stock that could be in store for big-time returns if we see a cyclical recovery ahead. Analysts at Baird, Barclays, Bank of America and Cowen have all issued “buy” ratings or the equivalent thereof over the last two months thanks to improving operations, which bodes very well for the fate of this stock’s ability to capitalize on any spending tail winds if they occur.
7 best cyclical stocks to buy now:
— American Airlines Group Inc. (AAL)
— Halliburton Co. (HAL)
— Lowe’s Cos. Inc. (LOW)
— Nike Inc. (NKE)
— Salesforce Inc. (CRM)
— Tapestry Inc. (TPR)
— TJX Companies Inc. (TJX)
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7 Best Cyclical Stocks to Buy Now originally appeared on usnews.com
Update 01/17/23: This story was previously published at an earlier date and has been updated with new information.
