With the economy in recovery mode, attention is on cyclical stocks—those that tend to rise in price when economic activity picks up. Watching economic indicators is particularly crucial when it comes to knowing when to buy cyclicals, says David Lefkowitz, who is a senior equity strategist at UBS Wealth Management.
Four of the 10 major industrial sectors that make up the Standard & Poor’s 500 index are cyclical stocks: technology, industrials, raw materials and “consumer discretionary” (industries that sell nonessential items or services, such as restaurants or hotels), Lefkowitz says. He believes that shares of technology companies are undervalued compared with those of the other parts of the cyclical-stock market, because technology companies will benefit from companies that have been waiting to upgrade their technology infrastructure.
Derek Gabrielsen, who is an adviser at Strategic Wealth Partners, warns that cyclical stocks typically aren’t long-term investments. However, he likes Apple (Nasdaq: AAPL; Price: $431.91), because its price-to-earnings ratio tops that of the S&P 500, and Vanguard FTSE Emerging Markets exchange-traded fund (NYSE Arca: VWO; Price: $43.98), because the ETF doesn’t have the risk and volatility that other cyclical investments do.