The economy moves in a cycle with four basic stages: expansion (sustained growth), peak (slowing growth), contraction or recession (economic decline), and trough (the turning point before recovery begins).
This cycle has a significant effect on industries tied to economic growth. Corporate profits typically rise during expansions and fall during recessions, pulling the prices of cyclical stocks along with them. Understanding how cyclicality works and which stocks can weather it best is essential for any investor building a long-term portfolio.
What is a cyclical stock?
A cyclical stock is one whose underlying business generally follows the economic cycle. Cyclical companies perform well during expansions but typically see declining sales and profits during recessions and other economic slowdowns. This contrasts with defensive stocks, which tend to generate steady profits in good times and bad.
The economy has been expanding for several years, even as the Federal Reserve kept interest rates elevated to tame inflation. That higher-rate environment has slowed growth in some corners of the market without triggering a full recession, but the uncertainty has created meaningful volatility in cyclical stocks.
Key characteristics of cyclical stocks:
- Demand for their products rises during expansions and falls during recessions
- Profitability is highly variable -- strong in good times, often negative in downturns
- Stock prices tend to be more volatile, especially near economic peaks and troughs
Top cyclical stocks to consider
Despite economic uncertainty, some cyclical stocks have strong long-term tailwinds that could help them thrive even if headwinds intensify. Here are four worth considering.
| Name and ticker | Market cap | Dividend yield | Industry |
|---|---|---|---|
| Walt Disney (NYSE:DIS) | $167.9 billion | 1.32% | Entertainment |
| Airbnb (NASDAQ:ABNB) | $78.6 billion | 0.00% | Hotels, Restaurants and Leisure |
| EPR Properties (NYSE:EPR) | $3.8 billion | 7.14% | Specialized REITs |
| Nucor (NYSE:NUE) | $37.8 billion | 1.33% | Metals and Mining |
1. The Walt Disney Company
NYSE: DIS
Key Data Points
Entertainment giant Disney (DIS -1.27%) has a cyclical 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.
Despite concerns about the economy, Disney is seeing resilient demand for its experiences. In its fiscal first quarter of 2026, revenue from domestic parks and experiences rose 7% while international revenue increased by 7%, offsetting flat consumer products sales. Meanwhile, entertainment revenue rose 6%, driven by a 13% jump in subscription fees, as its direct-to-consumer offerings, such as Disney+, continue to benefit from more people switching 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
Airbnb (ABNB -4.51%) is a leading online vacation rental platform. While vacation demand tends to decline during a recession, Airbnb's platform should remain highly resilient. It's focusing on four key areas to drive consistent growth: improving its service, expanding into more regions, enhancing its offerings, and integrating AI into its app.
The company wants its app to be a lot like Amazon (AMZN -2.97%). It aims to be the go-to source for travel and living needs. The company intends to build several new businesses in the coming years. It plans to start by investing in experiences that enhance user stays, such as tours led by locals. Airbnb also anticipates expanding into other areas, such as partnering with companies like grocery stores and cleaning services. The company's expansion strategy should enable it to continue growing even in a cyclical downturn in travel.
3. EPR Properties
NYSE: EPR
Key Data Points
NYSE: NUE
Key Data Points
Steel producer Nucor (NUE -0.33%) tends to be highly cyclical since demand for steel ebbs and flows with the economy. When the economy is expanding, companies use more steel to construct buildings, cars, and other industrial goods. However, demand for steel tends to decline during a recession.
While Nucor could eventually see a slowdown in steel demand, it's benefiting from increased infrastructure spending. The company's business has also proven more resilient than others in the steel sector over the years, as shown by its dividend. As of early 2026, Nucor had paid 212 consecutive quarterly dividends. It has increased its dividend payments for 53 straight years -- every single year since it first paid dividends in 1973 -- qualifying it as a Dividend King, or a company with 50 or more years of annual dividend increases.
Cyclical vs. noncyclical stocks
It's essential for investors to understand the key differences between cyclical and noncyclical stocks.
Cyclical stocks are companies with businesses tied to the economic cycle. A growing economy drives demand for their products or services, which, in turn, typically increases their revenue and profitability.
Noncyclical stocks are companies in more economically resilient industries (also known as defensive or recession-proof sectors). As a result, demand for their products or services tends to remain stable and continue growing during a recession.
Examples of noncyclical industries
Some businesses hold up well no matter where the economy is in its cycle. The most prominent defensive sectors include:
- Nondiscretionary retail: Grocery stores, drugstores, and big-box retailers selling everyday necessities tend to be resilient even in deep recessions.
- Utilities: Consumers generally keep paying their electric and water bills regardless of economic conditions.
- Defensive real estate: REITs focused on medical offices or necessity retail tend to hold up better than those invested in hotels or timberland. That said, the entire real estate sector is sensitive to interest rates -- rising rates weigh on values, while falling rates provide a tailwind.
It's worth noting that even defensive stocks aren't entirely recession-proof. In severe downturns, investors sometimes rotate out of equities entirely into bonds and cash, which can weigh on even the most stable stocks.
How Cyclical Stocks Respond to Economic Changes
Cyclical stocks benefit when the economy expands, as that drives growing demand for their products and services. That enables them to expand their operations to capture this growth, boosting their earnings and stock prices and increasing their ability to return cash to investors via dividends and share repurchases.
However, when the economy slows, demand for economically sensitive products and services also slows. That impacts their financial results, leading to a decline in their stock prices. Cyclical companies often respond to these changes by reducing their workforce, cutting capital spending, and, in some cases, reducing the amount of cash they return to shareholders.
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:
- Benefiting from economic growth: Cyclical companies tend to see increased demand for their products and services as the economy expands.
- Potential inflationary hedge: Cyclical companies can help you hedge your portfolio against inflation when consumer spending is rising.
- 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 likely to cut 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 maintain a strong investment-grade balance sheet with low leverage relative to 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 theory, the ideal strategy is to buy cyclical stocks at the start of an expansion and sell just before a recession. In practice, no one can reliably predict that timing.
A more practical approach is to hold a blend of cyclical and defensive stocks. That way, you're positioned to benefit when the economy grows, while your defensive holdings provide some cushion when it contracts.
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.
Strategies for Investing in Cyclical Stocks
Here are some practical tips for investing in cyclical stocks:
- Increase your portfolio's exposure to cyclical stocks during the economic cycle's trough and expansion phases.
- Consider reducing your exposure to cyclical stocks as the economy slows.
- Pair cyclical stocks with more defensive holdings.
Related investing topics
FAQ
FAQ on cyclical stocks
About the Author
JPMorgan Chase is an advertising partner of Motley Fool Money. Matt DiLallo has positions in Airbnb, Amazon, Apple, Coca-Cola, EPR Properties, JPMorgan Chase, NextEra Energy, Realty Income, and Walt Disney and has the following options: short March 2026 $125 calls on Walt Disney and short May 2026 $280 calls on Apple. The Motley Fool has positions in and recommends Airbnb, Amazon, Apple, Boeing, Costco Wholesale, EPR Properties, JPMorgan Chase, NextEra Energy, Realty Income, Texas Roadhouse, and Walt Disney. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.
