The economy moves in a cycle with four basic stages:
- Expansion: A period of sustained growth.
- Peak: A time of slowing growth.
- Contraction: A period of economic decline, also called a recession.
- Trough: A transitional time when the economy stops declining and begins to recover.
This cycle can have a significant effect on industries tied to economic growth. Stocks in those sectors tend to be very cyclical. Corporate profits typically rise during an expansion and contract during a recession, taking the price of cyclical stocks with them. This cyclicality contrasts with other types of stocks that tend to generate steady profits in good times or bad, making them relatively recession-proof.
The economy has been expanding for the past several years. This continued growth has come even though the Federal Reserve has kept interest rates high to tame inflation. While higher rates have slowed the economy, it's not yet clear whether it's nearing a peak or just taking a breather. However, the uncertainty has caused a lot of volatility in cyclical stocks.
Here’s what you should know about investing in cyclical stocks.
What is a cyclical stock?
A cyclical stock is one whose underlying business generally follows the economic cycle of expansion and recession. Cyclical businesses perform well during economic expansions but typically experience significantly declining sales and profits during recessions and other challenging economic times.
Characteristics of cyclical stocks
Cyclical stocks share several common characteristics, including:
- Businesses tied to the economic cycle: Demand for their products or services rises during periods of economic expansion and falls during a recession.
- Variable profitability: Their profitability can be highly variable, increasing during an economic expansion and falling during a downturn when they often report losses.
- Volatile: Their stock prices tend to be more volatile, especially during periods when the economy is peaking or in a trough phase.
Cyclical stocks tend to move up and down in value alongside the market.
Best cyclical stocks to buy in 2025
While the economy has been expanding since 2020, it seemed to be nearing a cyclical peak in 2022 when the Federal Reserve started raising interest rates to curb inflation. However, the economy has proven to be more resilient than many expected and has still not experienced a recession as of late 2025. Still, the rise in interest rates has had an effect on cyclical stocks.
Despite this impact, some cyclical stocks have longer-term tailwinds that should enable them to thrive even if economic headwinds grow stronger. With that in mind, here are four top cyclical stocks that should still thrive in the coming year:
| Name and ticker | Market cap | Dividend yield | Industry |
|---|---|---|---|
| Walt Disney (NYSE:DIS) | $198.6 billion | 1.12% | Entertainment |
| Airbnb (NASDAQ:ABNB) | $82.0 billion | 0.00% | Hotels, Restaurants and Leisure |
| EPR Properties (NYSE:EPR) | $3.8 billion | 7.00% | Specialized REITs |
| Nucor (NYSE:NUE) | $36.4 billion | 1.38% | Metals and Mining |
1. The Walt Disney Company
NYSE: DIS
Key Data Points
Entertainment giant Disney (DIS -0.63%) has some cyclicality to its business. Consumers reduce their spending on discretionary purchases, such as vacations, during a recession. That affects Disney’s experiences (parks, cruises, and vacation clubs) and other consumer products businesses.
However, despite concerns about the economy, Disney is seeing resilient demand for the experiences it offers. In its fiscal fourth quarter of 2025, revenue from domestic parks and experiences rose 9% while international revenue increased by 25%. Meanwhile, consumer product sales increased 3%. However, entertainment revenue fell 6%, driven down by a 16% decline in linear networks and a 26% sales slump from content sales and licensing. That offset an 8% revenue increase of its direct-to-consumer offerings (6%), such as Disney+, as more people switch to streaming.
Disney could buck the economic cycle by continuing to boost its revenue and earnings in the coming years. The company expects to deliver double-digit earnings growth for fiscal 2026 and 2027.
2. Airbnb
NASDAQ: ABNB
Key Data Points
NYSE: EPR
Key Data Points
NYSE: NUE
Key Data Points
Examples of cyclical industries
It's not practical to list every cyclical industry. However, to give you a good idea of some of the sectors prone to cyclicality, here are eight prominent and easy-to-understand examples:
- Airlines: During good economic times, individuals and businesses tend to be more willing and able to spend money on airline tickets than during lean periods.
- Hotels: Like airlines, hotels depend on individuals and businesses spending money on travel.
- Retail: During economic contractions, people tend to spend less on discretionary retail goods. However, retailers primarily selling things that people need are not as cyclical, especially when they prioritize offering discounts. Walmart (NYSE:WMT) can be considered countercyclical since the company's sales often increase during tough times.
- Restaurants: During economic downturns, people eat at home more often than they do during prosperous times, and restaurant stocks often suffer as a result.
- Automakers: Consumers tend to hang on to their vehicles longer when recessions hit and are more inclined to buy new vehicles in prosperous times, so automaker stocks tend to be quite cyclical.
- Technology: Most (but not all) tech stocks are cyclical. Individuals and businesses are less inclined to spend money on the latest technologies and electronic devices during recessions.
- Banks: Bank stocks are cyclical. In a recession, the profitability of banks often declines. Recessions reduce demand for banking products, including mortgages, auto loans, and credit cards, and more consumers who already have loans struggle to pay their debts. In addition, interest rates usually fall during recessions, causing bank profit margins to contract.
- Manufacturing: In tough times, companies that manufacture physical products generally experience plunging demand as individuals and businesses spend less on pretty much everything.
Many of the sectors mentioned above, such as automotive and retail, are consumer-facing industries and, therefore, part of the consumer cyclical sector. Consumer cyclicals are consumer discretionary goods that, unlike consumer staples, aren't strictly necessary purchases.
Consumer cyclicals are divided into two subcategories: durable and nondurable. Durable cyclicals include physical consumer goods that have long useful lives (e.g., vehicles). Nondurable cyclicals have shorter useful lives or are consumed quickly (e.g., clothing and prepared foods).
Each recession is different. An economic downturn might not affect all cyclical stocks in the same way. For example, while technology stocks tend to be cyclical, heavy investments in new technologies like artificial intelligence (AI) could continue driving growth for this sector, even if there's a recession in the next couple of years.
Benefits and risks of investing in cyclical stocks
Cyclical stocks have their pros and cons. Some of the advantages of investing in cyclical stocks include:
- Benefitting from economic growth: Cyclical companies tend to see increasing demand for their products and services when the economy expands.
- Potential inflationary hedge: Cyclical companies can help you hedge your portfolio against the effects of inflation when consumer spending is on the rise.
- Income: Many cyclical stocks pay dividends, which can be higher during periods of economic growth.
Meanwhile, some of the risks of investing in cyclical stocks include:
- Variable earnings: The profitability of cyclical companies tends to ebb and flow with the economic cycle.
- Dividend cuts: Cyclical companies are more susceptible to cutting their dividends during an economic downturn.
- Financial issues: A severe economic downturn can cause significant financial problems for some cyclical companies.
What to look for in a cyclical stock
Investors should look for a few things when investing in a cyclical stock:
- Balance sheet strength: The company should have a strong investment-grade balance sheet with low leverage metrics compared to its peers. This will enable a cyclical company to rely on its balance sheet to navigate through the low point of the economic cycle.
- Durable competitive advantages: Look for a company that has notable competitive advantages over rivals, such as brand power, low-cost operations, and strong customer relationships. It can use its competitive advantages to take market share during an economic downturn.
- Secular growth drivers: Look for a company capitalizing on a longer-term growth trend that should remain strong during a recession.
When should you buy cyclical stocks?
In a perfect world, the best investment strategy would be to buy cyclical stocks at the start of an economic expansion and to sell them just before a recession. But trying to predict the timing of a future recession or expansion is a losing battle.
Owning a combination of cyclical and defensive stocks in your portfolio is smarter. You'll be well positioned to prosper when the economy is growing, but also will have some downside protection when the economy contracts.
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How to invest in cyclical stocks
Here's a step-by-step guide on how to invest in cyclical stocks:
- Open your brokerage app: Log in to your brokerage account where you handle your investments.
- Search for the stock: Enter the ticker or company name into the search bar to bring up the stock's trading page.
- Decide how many shares to buy: Consider your investment goals and how much of your portfolio you want to allocate to this stock.
- Select order type: Choose between a market order to buy at the current price or a limit order to specify the maximum price you're willing to pay.
- Submit your order: Confirm the details and submit your buy order.
- Review your purchase: Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly.
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