Recognizing Value Situations - Cyclical Plays

Recognizing Value Situations - Cyclical Plays

Generally, cyclical companies shouldn't be confused with value investments. Growth, although apparent in the short term, usually isn't sustainable. Investors are getting wiser and aren't as likely to bid up prices in good times, nor bid them way down in bad times, so this form of market timing doesn't work as well.

But occasionally companies caught in the cyclical pool come up with strategies to climb out of it, and move more steadily up and to the right International expansion can reduce cyclical effects.

Manufacturing companies diversify into more recession-proof financial services (which make more money as poor business conditions beget lower interest rates). General Electric has figured this out, and Ford has tried. Other smaller companies may have more effective cycle-beating strategies, because it's hard to keep such big ships as Ford and GE from turning when the wind shifts. If a company seems cheap and has something new in its portfolio to avoid cyclical price and earnings behaviour, it may be worth a look.

Also read:
Recognizing Value Situations
Recognizing Value Situations - Growth at a Reasonable Price
Recognizing Value Situations - The Fire Sale
Recognizing Value Situations - The Asset Play
Recognizing Value Situations - Growth Kickers
Recognizing Value Situations - Turning the Ship Around
Recognizing Value Situations - Cyclical Plays
Recognizing Value Situations - Smoke and Mirrors