In this article, we discuss the 10 best cyclical stocks to buy now.
Economic crises like the one resulting from the COVID-19 pandemic last year are harder on some stocks than others. These cyclical companies, whose fortunes depend on the ebb and flow of the broader market, offer a sneaky opportunity for investors to either ride the economic boom or unload the burden of losses before a crisis, depending on their assessment of the situation. As the vaccine rollout continues, business activities have almost returned to normal, and stocks of firms that suffered during the pandemic look set to make a comeback.
One stock that investors should keep on their radar is Caterpillar Inc. (NYSE: CAT), the Deerfield-based heavy equipment manufacturer that stands to gain from the increased industrial activity in the post pandemic economy. Caterpillar Inc. (NYSE: CAT) stock has also been given an additional boost by the American Jobs Plan, an initiative of US President Joe Biden to pour hundreds of billions of dollars into American companies for the improvement of infrastructure across the North American country.
Another cyclical stock that is likely to soar with the resumption of business is The Boeing Company (NYSE: BA), the Chicago-based firm that makes and sells aircraft. The Boeing Company (NYSE: BA) will gain from the increase in international travel that will likely lead to more aircraft orders from major international travel hubs like London, Istanbul, and Dubai. A court settlement over controversy involving Boeing 737 MAX will also aid the firm in riding the post pandemic economic recovery.
Retail companies like Costco Wholesale Corporation (NASDAQ: COST) are uniquely placed to take advantage of the situation as well. Even though retail firms were able to weather the pandemic storm better than other companies because of the shift to digital sales, there is much to gain from the reopening of stores that will reopen a large and steady stream of revenue for these firms. Costco Wholesale Corporation (NASDAQ: COST) has already registered double digits sales growth in the US and Canada for the third fiscal quarter.
In addition to the stocks outlined above, certain industries like hotels, restaurants, automakers, banks, and others also have a lot of good options in the cyclical segment. Many of the industries mentioned have been negatively impacted by the coronavirus crisis, while the technology sector has gained from their misfortunes. With normal service resuming, it is likely that these sectors will snatch back some of the growth from technology stocks. Some early signs of this shift towards cyclicals is evident as many tech stocks have been highly volatile the past few weeks.
However, some technological changes are so revolutionary that they cannot be undone. For example, the onset of crypto and fintech has decidedly changed the finance world. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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With this context in mind, here is our list of the 10 best cyclical stocks to buy now.
Best Cyclical Stocks To Buy Now
10. Delta Air Lines, Inc. (NYSE: DAL)
Number of Hedge Fund Holders: 50
Delta Air Lines, Inc. (NYSE: DAL) is a Georgia-based airline carrier founded in 1924. It is ranked tenth on our list of 10 best cyclical stocks to buy now. Delta stock has offered investors returns exceeding 89% in the past twelve months. In addition to air transportation services, the firm markets aircraft maintenance, repair, and overhaul services, and offers vacation packages, aircraft charters, and management programs. The company has a fleet of more than 1,100 aircraft.
On May 19, investment advisory maintained an Overweight rating on Delta Air Lines, Inc. (NYSE: DAL) stock with a price target of $72, implying an upside potential of close to 52%, well above consensus estimates of close to $55.
At the end of the first quarter of 2021, 50 hedge funds in the database of Insider Monkey held stakes worth $1.09 billion in Delta Air Lines, Inc. (NYSE: DAL), down from 58 in the preceding quarter worth $1.05 billion.
Just like Caterpillar Inc. (NYSE: CAT), The Boeing Company (NYSE: BA), and Costco Wholesale Corporation (NASDAQ: COST), Delta Air Lines, Inc. (NYSE: DAL) is one of the best cyclical stocks to buy now.
In one of their investor letters, Miller Value Partners highlighted a few stocks and Delta Air Lines Inc. (NYSE: DAL) is one of them. Here is what the fund said:
“Delta Air Lines Inc. (DAL) declined -1.38% over the period after the initial hit to the stock in 1Q following the outbreak of the COVID-19 pandemic. The company reported 1Q results with EPS of -$0.51, in-line with consensus. The company guided for June revenue to be down 90% YoY and announced another $1B cut to capital expenditures (CAPEX) for a total cut of $3B so far this year. The company ended the quarter with $6B in liquidity and they expect to end the June quarter with $10B in liquidity. Delta held its annual shareholders’ meeting where it noted that it expects to finish the 2nd quarter with over $15B in liquidity with a daily cash burn of $30M getting to breakeven by the end of the year.”
9. TPI Composites, Inc. (NASDAQ: TPIC)
Number of Hedge Fund Holders: 18
TPI Composites, Inc. (NASDAQ: TPIC) is an Arizona-based manufacturing firm founded in 1968. It is placed ninth on our list of 10 best cyclical stocks to buy now. TPI stock has offered more than 132% in returns to investors over the past year. The firm focuses on the manufacture and marketing of composite wind blades and other precision equipment. The firm has business interests in Asia, Europe, Africa, and Central America, in addition to the United States. The firm serves the transportation industry as well as the energy sector.
On May 6, TPI Composites, Inc. (NASDAQ: TPIC) posted earnings results for the first quarter of 2021, reporting earnings per share of -$0.05, beating market predictions by $0.13. The revenue over the period was $404 million, up 13% year-on-year.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Caxton Associates LP is a leading shareholder in TPI Composites, Inc. (NASDAQ: TPIC) with 800,800 shares worth more than $45 million.
In their Q4 2020 investor letter, Wasatch Micro Cap Value Fund highlighted a few stocks and TPI Composites Inc. (NASDAQ: TPIC) is one of them. Here is what the fund said:
“TPI Composites, Inc. (TPIC) was also a large contributor. Occasionally, we’re asked how our holdings measure up to the priorities of the Democratic Party. In general, we believe a strong company will thrive regardless of which political party is in power. But it’s possible some of our holdings will align particularly well with the incoming Democratic agenda. TPI Composites is a good example of a company that’s well-positioned for green-energy initiatives. The company designs and manufactures composite wind blades for wind energy. The stock was up strongly after TPI announced third-quarter net sales had increased 23.5% compared to the year-ago period. We believe some of this increase was due to the resumption of business that had been postponed during the height of the Covid anxiety. We’d like to find more alternative-energy companies to invest in, but it’s often difficult to uncover companies in this segment that meet our valuation and business-quality standards.”
8. The TJX Companies, Inc. (NYSE: TJX)
Number of Hedge Fund Holders: 63
The TJX Companies, Inc. (NYSE: TJX) is a Framingham-based departmental store chain founded in 1987. It is ranked eighth on our list of 10 best cyclical stocks to buy now. TJX stock has returned more than 28% to investors over the course of the past twelve months. The firm focuses on off-price apparel and home fashion retail. Some of the products it sells include footwear, furniture, rugs, lighting products, giftware, gourmet, and fine jewelry, among others. TJX owns and runs more than 3,000 stores in the United States.
The TJX Companies, Inc. (NYSE: TJX) posted earnings results for the first quarter of 2021 on May 19, reporting earnings per share of $0.44, beating market predictions by $0.13. The revenue over the period was more than $10 billion.
At the end of the first quarter of 2021, 63 hedge funds in the database of Insider Monkey held stakes worth $2.3 billion in The TJX Companies, Inc. (NYSE: TJX), down from 68 in the preceding quarter worth $2.2 billion.
Giverny Capital, in their Q1 2021 investor letter, mentioned The TJX Companies, Inc. (NYSE: TJX). Here is what the fund said:
“We’re pretty happy with the current portfolio and so were not very active during the quarter. Our only consequential decision in the first quarter was to exit the off-price retailer The TJX Companies in January. My prior firm owned TJX for most of the past 20 years and enjoyed appreciation on the order of 20 times the original purchase price.
TJX is a great company, but the growth rate has slowed in recent years and the operating margin has been under pressure, mainly from rising wages for store workers. When the pandemic hit, I bought the stock for GCAM in the belief that if the US fell into a prolonged recession, TJX would be a winner because of its extreme value position.
The US didn’t fall into a prolonged recession. Rather, many consumers are flush with cash thanks to government relief programs. But brick-and-mortar stores are losing out to online competitors for reasons of safety and convenience. TJX has fared much better than most of its competitors during this time and should continue to do so, thanks to its model of buying inventory close to need and reacting to what is happening in the marketplace rather than trying to create hot product. But the stock rose about 50% in the few months we owned it and that increase seemed to price in a complete recovery and more. We sold in early January.”
7. The Walt Disney Company (NYSE: DIS)
Number of Hedge Fund Holders: 134
The Walt Disney Company (NYSE: DIS) is a California-based mass media and entertainment firm founded in 1923. It is placed seventh on our list of 10 best cyclical stocks to buy now. Disney stock has returned more than 52% to investors over the course of the past year. The company owns and runs theme parks, film studios, broadcast stations, and an internet streaming service. Some of the famous brands it owns include ESPN, National Geographic, Pixar, and Disneyland, among others.
On May 13, The Walt Disney Company (NYSE: DIS) reported earnings for the second fiscal quarter, posting earnings per share of $0.79, beating market estimates by $0.53. The revenue over the period was more than $15 billion, missing market predictions by over $300 million.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in The Walt Disney Company (NYSE: DIS) with 10 million shares worth more than $1.9 billion.
Just like Caterpillar Inc. (NYSE: CAT), The Boeing Company (NYSE: BA), and Costco Wholesale Corporation (NASDAQ: COST), The Walt Disney Company (NYSE: DIS) is one of the best cyclical stocks to buy now.
Harding Loevner, in their Q4 2020 investor letter, mentioned The Walt Disney Company (NYSE: DIS). Here is what the fund said:
“One of the original constituents of the Nifty Fifty holds a place in our portfolio today. When we bought Disney three years ago, we wrote that “we view Disney theme parks in the US, Europe, and China as resistant to online substitution.” We did not reckon on a pandemic, which closed all of them, and sent all of usto our couches. Disney, however, wasready for us, brilliantly illustrating the importance of management foresight and change management. Or, as Louis Pasteur said, “chance favors the prepared mind.”
A century after its founding in 1923, Disney is in the middle of a bold shift from its legacy media networks & entertainment model—with cable TV, theme parks, and theater films dominating its earnings—to a direct-to-consumer streaming media model. The keys to Disney’s transition: matchless storytelling, coupled with financial strength. The company reliably creates content that people all over the world are eager to consume. It also hastened spending on original content to attract subscribers to its new streaming platform. These factors have allowed Disney to weather the pandemic having expanded its direct engagement with customers. Such connections yield a rich harvest of insights used to customize offerings on a mass scale, reinforcing that engagement in a virtuous circle and thereby raising the lifetime value of each customer. Subscribers to Disney+ reached 86.8 million one year after launch, compared to the 60 – 90 million management projected to reach in 2024. To be sure, Netflix, Apple, and Amazon remain formidable competitors in new-era streaming entertainment (mind what we said about everyone standing up at once), but there’s fight left in this old dog.”
6. Brown-Forman Corporation (NYSE: BF-B)
Number of Hedge Fund Holders: 35
Brown-Forman Corporation (NYSE: BF-B) is a Kentucky-based company that makes and sells alcoholic beverages. It was founded in 1870 and is ranked sixth on our list of 10 best cyclical stocks to buy now. The stock has offered investors returns exceeding 21% in the past year. The products that the firm sells include spirits, wines, whiskey spirits, cocktails, vodkas, tequilas, champagnes, brandy, bourbons, and liqueurs, among others. The brands it owns include Jack Daniel’s, Woodford Reserve, and Canadian Mist, among others.
Brown-Forman Corporation (NYSE: BF-B) is a good option for income investors as the firm gives a healthy dividend to shareholders. On May 27, the company declared a quarterly dividend of $0.1795 per share, in line with previous. The forward yield was 0.9%.
At the end of the first quarter of 2021, 35 hedge funds in the database of Insider Monkey held stakes worth $1.4 billion in Brown-Forman Corporation (NYSE: BF-B), up from 29 in the preceding quarter worth $1.5 billion.
Just like Caterpillar Inc. (NYSE: CAT), The Boeing Company (NYSE: BA), and Costco Wholesale Corporation (NASDAQ: COST), Brown-Forman Corporation (NYSE: BF-B) is one of the best cyclical stocks to buy now.
5. Costco Wholesale Corporation (NASDAQ: COST)
Number of Hedge Fund Holders: 56
Costco Wholesale Corporation (NASDAQ: COST) is a Washington-based retail company founded in 1963. It is placed fifth on our list of 10 best cyclical stocks to buy now. Costco stock has returned more than 22% to investors over the course of the past twelve months. The company owns and runs membership-only stores and has business interests in Puerto Rico, Canada, the United Kingdom, Mexico, Japan, Korea, Australia, Spain, France, Iceland, China, and Taiwan, in addition to the United States.
Costco Wholesale Corporation (NASDAQ: COST) posted earnings for the third fiscal quarter on May 27, reporting earnings per share of $2.84, beating market estimates by $0.56. The revenue over the period was more than $45 billion, up 21% year-on-year.
Out of the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Costco Wholesale Corporation (NASDAQ: COST) with 3.6 million shares worth more than $1.2 billion.
In its Q1 2021 investor letter, Ensemble Capital, an asset management firm, highlighted a few stocks and Costco Wholesale Corporation (NASDAQ: COST) was one of them. Here is what the fund said:
“We saw these dynamics at play in the Fund. Some of the worst-performing stocks this quarter were among our best performers in Q1 2020. Another example was the market’s reaction to Costco Wholesale (1.5% weight in the Fund) during the quarter. From December 31, 2020 to March 8th, Costco shares declined 17% and dropped below their pre-pandemic high. The common rationale offered by sell-side analysts was that Costco would face difficult one-year “comps” (i.e. same-store sales, which compare sales from stores open for at least a year). Because so many consumers rushed to Costco ahead of shelter-in-place and subsequent quarantines, it will be harder for Costco to meaningfully beat those results when compared year-over-year. That may indeed be true, but we struggle to understand how Costco could be “less valuable” than it was a year earlier when it concurrently increased its membership base by over 7%, or 3.9 million members. With membership renewal rates around 90%, the vast majority of the new customers Costco brought in last year will be around for years to come.
Analysts also complained about Costco raising its already industry-leading minimum wage to $16/hour, with an average “effective” pay of $23-$24/hour when you include overtime and bonuses. Costco paying its employees “too much” has been a common gripe of Wall Street analysts for at least two decades. While the extra pay does indeed impact short-term profit margins, it also serves to make Costco more durable, as its flywheel (i.e. a virtuous value cycle) starts with happy employees. A 20-year chart of Costco stock price is evidence that this strategy works and we’re confident that it will continue to work.”
4. Restaurant Brands International Inc. (NYSE: QSR)
Number of Hedge Fund Holders: 26
Restaurant Brands International Inc. (NYSE: QSR) is a Canada-based fast food holding company founded in 1954. It is ranked fourth on our list of 10 best cyclical stocks to buy now. The company stock has returned more than 27% to investors over the course of the past year. Some of the big fast food brands the firm owns include Tim Hortons, Burger King, and Popeyes, among others. The company runs more than 27,000 eateries in more than 100 countries around the world.
Restaurant Brands International Inc. (NYSE: QSR) is also a good option for dividend investors. In late April, the company declared a quarterly dividend of $0.53 per share, in line with previous. The forward yield was 3.13%.
At the end of the first quarter of 2021, 26 hedge funds in the database of Insider Monkey held stakes worth $2.2 billion in Restaurant Brands International Inc. (NYSE: QSR), down from 39 in the preceding quarter worth $2.4 billion.
In its Q4 2020 investor letter, Pershing Square Holdings Ltd, an asset management firm, highlighted a few stocks and Restaurant Brands International Inc. (NYSE: QSR) was one of them. Here is what the fund said:
“QSR’s franchised business model is a high-quality, capital-light, growing annuity that generates high-margin brand royalty fees from three leading brands: Burger King, Tim Hortons and Popeyes. The company nimbly navigated difficult market conditions in 2020 by assisting franchisees, while maintaining its long-term growth potential.
As the COVID-19 pandemic began, management undertook a series of steps to secure and strengthen the business. The company quickly bolstered safety procedures and shifted marketing spend to highlight the off -premise options available to customers, while supporting its franchisees with fee/cap ex deferrals and liquidity programs. Throughout the year, the company accelerated its digital investments by expanding its delivery footprint, modernizing its drive-thru experience, increasing mobile ordering adoption, and improving its loyalty programs.
While the company’s sales were negatively impacted by the pandemic, comparable sales have already recovered or are well on their way to recovery. Burger King U.S. returned to growth in January; Tim Hortons improved to a high-single-digit decline in Canada during the fourth quarter, and Popeyes U.S. grew 16% in 2020. To accelerate the recovery at Tim Hortons in Canada, the company has committed additional funds to bolster its advertising, and support continued enhancements to its Tim’s Rewards program.
We continue to believe each of Restaurant Brands’ concepts will emerge stronger from this crisis as their business models are competitively advantaged in a socially distant and more budget-conscious consumption environment, and as the company continues to invest in drive-thru, delivery, and digital. We believe QSR’s long-term unit growth opportunity is still intact, and we expect unit growth to return to its mid-single-digit growth rate this year. As investors begin to see the results of these efforts, and underlying sales trends at each of its brands continue to improve, QSR’s share price should more accurately reflect our view of its business fundamentals.”
3. Live Nation Entertainment, Inc. (NYSE: LYV)
Number of Hedge Fund Holders: 37
Live Nation Entertainment, Inc. (NYSE: LYV) is a California-based entertainment company founded in 2005. It is placed third on our list of 10 best cyclical stocks to buy now. Live Nation stock has offered investors returns exceeding 33% in the past year. The company primarily focuses on the promotion, operation, and management of ticket sales for live entertainment in many countries around the world. It also owns and runs more than 200 entertainment venues globally.
On May 10, investment advisory Jefferies upgraded Live Nation Entertainment, Inc. (NYSE: LYV) stock to Buy with a price target of $96, implying an upside potential of 14%. The share price of the firm jumped more than 5% after the ratings update.
Out of the hedge funds being tracked by Insider Monkey, Virginia-based firm Akre Capital Management is a leading shareholder in Live Nation Entertainment, Inc. (NYSE: LYV) with 5.4 million shares worth more than $62 million.
In its Q4 2020 investor letter, Oakmark Funds, an asset management firm, highlighted a few stocks and Live Nation Entertainment, Inc. (NYSE: LYV) was one of them. Here is what the fund said:
“In 2006, we initiated our position in Live Nation, the global entertainment company that handles promotion, venue management and ticket sales for live events. Live Nation was spun out of the former Clear Channel Communications in late 2005. In our view, spinoffs often represent attractive opportunities because investors frequently undervalue the new company. We believed this was the case with Live Nation, especially given its initially small market capitalization. As well, when spinoffs are freed from their parents, they typically benefit from intensified management focus and more flexible capital allocation policies. In Live Nation’s case, the spinoff helped make possible the merger with Ticketmaster in 2010, which materially improved the business franchise. Although these factors alone might have made Live Nation a good holding for the Fund, an unexpected technology helped to boost the company’s fortunes: streaming. As the advantages of streaming convinced consumers to reduce or even eliminate their purchases of media, such as CDs and DVDs, artists began to tour more, thereby providing a tailwind to Live Nation’s operations. This accelerated growth in the company’s intrinsic value per share, which in turn generated numerous increases in our sell target for the holding, enabling us to continue to own the shares in the Fund for 14 years. We typically target a three- to five-year holding period for our equity investments, but we love opportunities like Live Nation, which achieve unanticipated intrinsic value growth.”
2. The Boeing Company (NYSE: BA)
Number of Hedge Fund Holders: 59
The Boeing Company (NYSE: BA) is an Illinois-based company that makes and sells airplanes, rotorcraft, rockets, satellites, telecommunications equipment, and missiles. It was founded in 1916 and is ranked second on our list of 10 best cyclical stocks to buy now. Boeing stock has returned more than 69% to investors over the course of the past twelve months. The company also offers supply chain and logistics management, engineering, maintenance and modifications, and spare parts for aircraft.
The Boeing Company (NYSE: BA) posted earnings results for the first quarter of 2021 on April 28, reporting earnings per share of -$1.53, missing market predictions by $0.46. The revenue over the period was more than $15 billion, beating market estimates by $140 million.
At the end of the first quarter of 2021, 59 hedge funds in the database of Insider Monkey held stakes worth $1.4 billion in The Boeing Company (NYSE: BA), up from 55 in the preceding quarter worth $1 billion.
In its Q1 2020 investor letter, Miller Value Partners, an asset management firm, highlighted a few stocks and The Boeing Company (NYSE: BA) was one of them. Here is what the fund said:
“We’ve known Boeing for a long time. It’s always been a high quality company that’s traded for a premium valuation owing to its position as a global duopoly. We’d looked at it recently after weakness due to its highly publicized Max 737 issues, but it never got cheap enough for us to pull the trigger. After the pandemic, the stock went into freefall as its customer bases’ business dried up and people worried about its liquidity. The stock fell from $338 on February 19th when the S&P hit its high to a low of $89. We bought the stock after the new CEO Dave Calhoun said publicly that it would not take government capital if it required equity dilution because it had many other options. Our average price is just above $120 where it was trading for less than 7x what it earned in 2018. It will likely take a while to normalize to those earnings levels, but this business will survive and ultimately we will own a leader in a global duopoly. Even on depressed forecasts, the company currently has about a 10-15% free cash flow yield. If and when the economy normalizes, we think Boeing could be worth more than double its current price.”
1. Caterpillar Inc. (NYSE: CAT)
Number of Hedge Fund Holders: 53
Caterpillar Inc. (NYSE: CAT) is an Illinois-based construction machinery and equipment company founded in 1925. It is placed first on our list of 10 best cyclical stocks to buy now. Caterpillar stock has returned more than 100% to investors over the past year. The company is one of the largest construction equipment manufacturers in the world and sells engines and financial products as well. It was formerly known as Caterpillar Tractor.
Caterpillar Inc. (NYSE: CAT) posted earnings for the first three months of 2021 in late April, reporting earnings per share of $2.87, beating market estimates by $0.93. The revenue over the period was close to $12 billion, up 11% year-on-year.
Out of the hedge funds being tracked by Insider Monkey, Washington-based firm Bill & Melinda Gates Foundation Trust is a leading shareholder in Caterpillar Inc. (NYSE: CAT) with 10 million shares worth more than $2.3 billion.
You can also take a peek at Billionaire Izzy Englander’s Top 10 Stock Picks and Billionaire David Abrams’ Top Stock Picks.
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Disclosure: None. 10 Best Cyclical Stocks to Buy Now is originally published on Insider Monkey.
