There are different types of stocks: Cyclical, Defensive, Growth and Value. See what the characteristics of these types are, and achieve a better return by investing your capital at the best possible time.
Cyclical shares are sensitive to the economy and the price will therefore fluctuate in step with the economy. Industries include industrials, energy, transport, and materials.
The so-called “consumption parties” help to give cyclists a solid increase. Often, this type of stock rises sharply before an economic recovery, as a result of people having more money in their hands. Cyclical stocks define companies whose production consists of goods and / or services that are not vital for consumers.
Consumer staples, utilities, real estate offer more defensive cash flows, less exposed to economic growth. Makes them more sensitive to rising bond yields. Expect them to underperform in a more cyclicals focused environment with earnings strong and bond yields rising. Healthcare is most attractive, with cheaper valuations and more growth.
In periods when consumers are pressured or choose to save money up in the bank, it hits the cyclical stocks very hard, whereas the defensive stocks remain at its level or even enjoy greater progress than usual.
The food and medicine are examples of 2 industries that are cyclically neutral. They are thus not affected by the current economic situation, which otherwise threatens other shares to lose their value. It can be argued that defensive stocks are price stable, precisely because companies in the cyclically neutral industries will always have the same or an increasing need from the consumer unit (consumers). For example, people want always in need of food and medicine. Although a stock is described as defensive, it can still be affected from any economic downturn as a “recession”.
It should be pointed out that in bad times, when defensive stocks have their strength, there are often many who withdraw from the stock market. Depending on the market situation, the sale will affect the vast majority of the shares, if not all to some degree. In short, one should not think that one is protected from price falls just because one replaces one’s cyclical stocks in the portfolio with defensive stocks.
Companies that year by year achieve a solid growth in revenue and earnings. The annual growth must be significantly higher than the economic growth level of the society.
Growth stocks will often already have recognized the annual expected growth rate. The reason is that expectations for growth equities are high, and the equities will therefore be traded at a relatively high price in relation to current earnings. In case of bad news, the stock will also be punished severely due to the high expectations.
Companies with low growth that are relatively low priced in relation to the company’s turnover and earning capacity. If the companies have succeeded in improving their turnover and earnings, a basis has been formed for solid price increases. Value stocks are described as a sensible long-term investment.
Metrics used to define value shares:
- Low P / E value
- Reasonable P / I value
- High yield