In this article, we discuss the 14 best cyclical stocks to invest in.
The United States economy has started picking up pace just ahead of the holiday season, boosting investor confidence in the stock market. According to data released by Washington, the US economy expanded at an annual rate of close to 5% between July and September, the fastest rate of growth in nearly twenty-four months. The growth was somewhat surprising since the Federal Reserve has been trying to clamp down on consumer spending by increasing interest rates. Analysts had kept growth numbers for the third quarter of the year to a modest 4.5% in line with the macro trends.
The US government statement on the numbers pointed to accelerations in consumer spending, private inventory investment, and federal government spending as the primary reasons behind the growth. The latest data has helped boost investor confidence in the US economy just as the holiday season gets underway, with cyclical stocks, that benefit from holiday spending, like The Walt Disney Company (NYSE:DIS), The Home Depot, Inc. (NYSE:HD), and The Mosaic Company (NYSE:MOS) expected to outperform the market in the coming months.
Our Methodology
The companies that operate in the cyclical sector, like shopping, retail, and travel, were selected for the list. In order to provide readers with some context for their investment choices, the business fundamentals and analyst ratings for the stocks are also discussed. Data from around 900 elite hedge funds tracked by Insider Monkey in the second quarter of 2023 was used to identify the number of hedge funds that hold stakes in each firm.
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Best Cyclical Stocks To Invest In
14. 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS)
Number of Hedge Fund Holders: 21
1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) markets gifts for different occasions. In August, Jim McCann, the CEO of the firm, said that the company had managed to mitigate the impact of a softer sales environment during fiscal 2023 through expense optimization efforts coupled with the improvement in gross margin. He predicted that the sales of the firm would rebound in the holiday season towards the end of the year.
On September 20, investment advisory DA Davidson maintained a Neutral rating on 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) stock and lowered the price target to $7.5 from $11, noting the fourth quarter earnings of the firm beat estimates due to high gross margins.
At the end of the second quarter of 2023, 21 hedge funds in the database of Insider Monkey held stakes worth $19 million in 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS), up from 17 the preceding quarter worth $4.3 million.
Just like The Walt Disney Company (NYSE:DIS), The Home Depot, Inc. (NYSE:HD), and The Mosaic Company (NYSE:MOS), 1-800-FLOWERS.COM, Inc. (NASDAQ:FLWS) is one of the best cyclical stocks to invest in.
13. Kohl’s Corporation (NYSE:KSS)
Number of Hedge Fund Holders: 23
Kohl’s Corporation (NYSE:KSS) is a retail company based in Wisconsin. In late August, the firm posted earnings for the second quarter of 2023, reporting earnings per share of $0.52, beating market estimates by $0.30. The revenue over the period was $3.9 billion, surpassing expectations by around $190 million. Tom Kingsbury, the CEO of the firm, said that new efforts by the firm, including the enhancement of the store experience, would contribute positively to the earnings in the last few months of 2023 and into 2024.
On October 4, investment advisory TD Cowen maintained an Outperform rating on Kohl’s Corporation (NYSE:KSS) stock and lowered the price target to $28 from $33, noting there was excitement around the new policies of the CEO of the retail company.
At the end of the second quarter of 2023, 23 hedge funds in the database of Insider Monkey held stakes worth $1.6 billion in Kohl’s Corporation (NYSE:KSS), compared to 28 in the previous quarter worth $2.5 billion.
12. American Eagle Outfitters, Inc. (NYSE:AEO)
Number of Hedge Fund Holders: 24
American Eagle Outfitters, Inc. (NYSE:AEO) operates as a specialty retailer that provides clothing, accessories, and personal care products. In early September, the company announced that trend collections and brand strength would contribute to a positive outlook in the second half of 2023. The firm revised revenue and operating income numbers, with the latter rising to $350 million, up from prior guidance of around $270 million. Jay Schottenstein, the CEO of the firm, said he was taking action to position the business for improved profit in the coming months.
On September 7, Deutsche Bank analyst Gabriella Carbone maintained a Buy rating on American Eagle Outfitters, Inc. (NYSE:AEO) stock and raised the price target to $20 from $17, noting upside was expected in the earnings of the firm for the rest of 2023.
Among the hedge funds being tracked by Insider Monkey, Florida-based investment firm Citadel Investment Group is a leading shareholder in American Eagle Outfitters, Inc. (NYSE:AEO) with 4.4 million shares worth more than $52 million.
11. Airbnb, Inc. (NASDAQ:ABNB)
Number of Hedge Fund Holders: 47
Airbnb, Inc. (NASDAQ:ABNB) operates a platform that enables hosts to offer stays and experiences to guests worldwide. The company is expected to announce third quarter earnings in the coming days, with analysts expecting a 20% year-on-year beat on earnings per share and a 17% year-on-year beat on revenue. In the past few weeks, as travel and leisure outlooks improve ahead of the holiday season, these consensus estimates have seen five upward revisions in the EPS and revenue estimates for the company.
On October 31, Mizuho analyst James Lee maintained a Neutral rating on Airbnb, Inc. (NASDAQ:ABNB) stock and lowered the price target to $130 from $150, noting the stock’s risk/reward was mixed into the quarter on a high bar for fiscal 2024 room nights.
Among the hedge funds being tracked by Insider Monkey, Florida-based Citadel Investment Group is a leading shareholder in Airbnb, Inc. (NASDAQ:ABNB) with 2.4 million shares worth more than $314 million.
In its Q3 2023 investor letter, Artisan Partners, an asset management firm, highlighted a few stocks and Airbnb, Inc. (NASDAQ:ABNB) was one of them. Here is what the fund said:
“Top contributors to performance for the quarter included global online travel marketplace Airbnb, Inc. (NASDAQ:ABNB). Airbnb again defied fears about weaker travel demand as it experienced continued recovery in cross-border and urban nights and resilient pricing trends, though travel volumes remain mixed.”
10. United Parcel Service, Inc. (NYSE:UPS)
Number of Hedge Fund Holders: 47
United Parcel Service, Inc. (NYSE:UPS) provides letter and package delivery services. In late October, the company posted earnings for the third quarter of 2023, reporting earnings per share of $1.57, beating analyst estimates by $0.01. The revenue over the period was $21 billion, missing estimates by $41 million. Despite macro uncertainty, the firm maintained a full-year planned capital expenditures target of about $5.3 billion and dividend payment expectations of around $5.4 billion.
On October 30, Argus analyst John Eade maintained a Buy rating on United Parcel Service, Inc. (NYSE:UPS) stock and lowered the price target to $175 from $210, noting the firm was well positioned to benefit from positive trends, including the growth of e-commerce.
Among the hedge funds being tracked by Insider Monkey, Florida-based investment firm Citadel Investment Group is a leading shareholder in United Parcel Service, Inc. (NYSE:UPS) with 1.8 million shares worth more than $333 million.
In its Q3 2023 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and United Parcel Service, Inc. (NYSE:UPS) was one of them. Here is what the fund said:
“A higher-for-longer rate mentality taking hold was a headwind for economically sensitive stocks. Rising wages have been one of the main drivers of inflation, and this has proved to be a sticky area, keeping the Fed’s attention and weighing on share prices. For example, United Parcel Service, Inc. (NYSE:UPS) renegotiated a wage increase for its union-backed workforce this summer, which weighed on margins that were already being constricted by slowing volumes. While the new union deal will dampen profits over the next 12 months due to the front-end-loaded nature of the new five-year contract, management gained increased flexibility to deploy automation, which we think should further enhance UPS’s strong competitive position and provide a long-term tailwind to profitability.”
9. Expedia Group, Inc. (NASDAQ:EXPE)
Number of Hedge Fund Holders: 57
Expedia Group, Inc. (NASDAQ:EXPE) operates as an online travel firm. In mid-October, the company announced that it was partnering with tech giants like Amazon and travel firms like Booking to join the Coalition for Trusted Reviews. The coalition aims to protect access to trustworthy consumer reviews worldwide. As part of the plan, the companies in the coalition will agree on industry standards for reviews and help filter out fake ones that hurt both the consumers and merchants who operate on travel platforms.
On October 8, investment advisory Barclays assumed coverage of Expedia Group, Inc. (NASDAQ: EXPE) stock with an Overweight rating and a price target of $128. Analyst Ross Sandler issued the ratings update.
At the end of the second quarter of 2023, 57 hedge funds in the database of Insider Monkey held stakes worth $2.1 billion in Expedia Group, Inc. (NASDAQ:EXPE), compared to 62 in the previous quarter worth $2 billion.
In its Q2 2023 investor letter, Patient Capital Management, an asset management firm, highlighted a few stocks and Expedia Group, Inc. (NASDAQ:EXPE) was one of them. Here is what the fund said:
“We like other names mostly ignored by the market for similar reasons. Names like Expedia Group, Inc. (NASDAQ:EXPE), General Motors (GM) and Delta Air Lines. These companies have strong returns on capital (14%+), good competitive positions, cheap valuations (all double-digit free cash flow yields), and are returning capital to shareholders. We trust the managements to take advantage of their depressed stock prices and create long-term shareholder value.”
8. The TJX Companies, Inc. (NYSE:TJX)
Number of Hedge Fund Holders: 59
The TJX Companies, Inc. (NYSE:TJX) operates as an off-price apparel and home fashions retailer. In mid-August, the firm posted earnings for the second quarter of 2023, reporting earnings per share of $0.85, beating market estimates by $0.007. The revenue over the period was $12.7 billion, up more than 7% compared to the revenue over the same period last year and beating expectations by more than $300 million.
On September 6, investment advisory Loop Capital maintained a Buy rating on The TJX Companies, Inc. (NYSE:TJX) stock and raised the price target to $105 from $100, noting the firm was best-positioned to see more young trade-down customers.
At the end of the second quarter of 2023, 59 hedge funds in the database of Insider Monkey held stakes worth $2 billion in The TJX Companies, Inc. (NYSE:TJX), compared to 73 in the previous quarter worth $2.7 billion.
ClearBridge Investments, in their Q2 2023 investor letter, mentioned The TJX Companies, Inc. (NYSE:TJX). Here is what the fund said:
“Top heavy leadership has overshadowed weakness across much of the equity market. We took advantage of the narrow breadth in the second quarter to increase our exposure to the consumer discretionary sector with two purchases that further enhance portfolio diversification and should help support consistent performance through a full cycle.
The TJX Companies, Inc. (NYSE:TJX) is the leading off-price apparel and home furnishings retailer known for its TJ Maxx, Marshalls and HomeGoods brands, with 4,800 global locations. We see TJX as a differentiated retailer offering shoppers a combination of value and convenience with continued share gain opportunity against large addressable U.S. markets for apparel and home decor. We also see room for TJX to modestly expand margins on the back of sales leverage and as freight, shrink and wage pressures ease. While TJX is not immune to macro risks, we see the company as relatively well-positioned even in the event of an economic deterioration as benefits from better inventory availability and consumer trade-down accrue.”
7. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 64
Lowe’s Companies, Inc. (NYSE:LOW) operates as a home improvement retailer. In early September, Bernstein analysts led by Dean Rosenblum predicted that the firm would deliver modest op margin expansion over the next 24 months, driven by the continued modest gross margin expansion combined with stable to modestly improving sales. The investment advisory also said the long-term outlook of the stock was skewed upwards.
On October 18, Piper Sandler analyst Peter Keith maintained an Overweight rating on Lowe’s Companies, Inc. (NYSE:LOW) stock and lowered the price target to $240 from $262, noting that total home equity extractions were showing signs of stability quarter-over-quarter.
At the end of the second quarter of 2023, 64 hedge funds in the database of Insider Monkey held stakes worth $3.7 billion in Lowe’s Companies, Inc. (NYSE:LOW), compared to 67 in the preceding quarter worth $5 billion.
In its Q3 2023 investor letter, Madison Investments, an asset management firm, highlighted a few stocks and Lowe’s Companies, Inc. (NYSE:LOW) was one of them. Here is what the fund said:
“The bottom five individual contributors were Dollar Tree, Fiserv, Analog Devices, Lowe’s Companies, Inc. (NYSE:LOW), and Alcon. Both Analog Devices and Lowe’s Companies saw end-market demand moderate (in semiconductors and home improvement products, respectively) relative to the strong levels over the last couple of years. Despite these near-term trends, we remain very confident in the long-term trends within both markets.”
6. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 67
Costco Wholesale Corporation (NASDAQ:COST) engages in the operation of membership warehouses. The firm is one of the most reliable dividend players in the market with cose to two decades of growing payments under its belt. On October 18, the company declared a quarterly dividend of $1.02 per share, in line with previous. The forward yield was 0.71%. The dividend would be payable to shareholders in the early part of November.
On October 5, DA Davidson analyst Michael Baker maintained a Neutral rating on Costco Wholesale Corporation (NASDAQ:COST) stock with a price target of $570, noting that sales data for the firm showed total comps strengthened for the third month of acceleration in a row.
At the end of the second quarter of 2023, 67 hedge funds in the database of Insider Monkey held stakes worth $2.2 billion in Costco Wholesale Corporation (NASDAQ:COST), compared to 63 in the preceding quarter worth $1.8 billion.
In addition to The Walt Disney Company (NYSE:DIS), The Home Depot, Inc. (NYSE:HD), and The Mosaic Company (NYSE:MOS), Costco Wholesale Corporation (NASDAQ:COST) is one of the best cyclical stocks to invest in.
In its Q3 2023 investor letter, Madison Investments, an asset management firm, highlighted a few stocks and Costco Wholesale Corporation (NASDAQ:COST) was one of them. Here is what the fund said:
“Costco Wholesale Corporation (NASDAQ:COST) moved higher during the quarter with solid sales and traffic trends and waning inflation. As the consumer faces a tougher economic backdrop, we see Costco continuing to gain share with its strong value proposition.”
5. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 68
The Home Depot, Inc. (NYSE:HD) is a home improvement retailer. In mid-August, the company beat market expectations on earnings per share and revenue for the second quarter of 2023. The board of directors of the company also announced they had authorized a $15 billion share buyback program, replacing the previous program. The firm reaffirmed 2023 outlook and the CEO said that there was positivity on the medium-to-long term outlook for home improvement and the ability to grow share in a large and fragmented market.
On October 5, Truist analyst Scot Ciccarelli maintained a Buy rating on The Home Depot, Inc. (NYSE:HD) stock and lowered the price target to $341 from $372, noting that card data suggested that retail spending trends had softened at the margin over the last few weeks.
Among the hedge funds being tracked by Insider Monkey, Florida-based investment firm Citadel Investment Group is a leading shareholder in The Home Depot, Inc. (NYSE:HD) with 2 million shares worth more than $641 million.
In its Q3 2023 investor letter, Madison Investments, an asset management firm, highlighted a few stocks and The Home Depot, Inc. (NYSE:HD) was one of them. Here is what the fund said:
“We updated the sustainable scorecard for The Home Depot, Inc. (NYSE:HD) and maintained our Above Average Rating. Home Depot’s corporate responsibilities focus on three pillars: focusing on its people, operating sustainably, and strengthening its communities. Home Depot continues to focus on its people by investing billions of dollars in wages, training, and benefit enhancement. The company’s environmental targets include the reduction of direct (Scope 1) and indirect (Scope 2) emissions by 42% by 2030, as well as a 25% decrease in emissions related to the “use of products sold” (Scope 3 emissions). Both targets are from a 2020 base year.
Separately, The Home Depot Foundation announced that it will invest $6 million in skilled trades training to address the 400,000 job openings across the construction industry. This grant launches a new program that will provide free, skilled trades training and scholarships for veterans and military families.”
4. MercadoLibre, Inc. (NASDAQ:MELI)
Number of Hedge Fund Holders: 77
MercadoLibre Inc. (NASDAQ:MELI) operates online commerce platforms in Latin America. The firm is expected to announce earnings for the third quarter of 2023 in the coming days. Analysts expect the company to beat the market expectations on earnings per share and revenue. The former is expected to increase 121% year-on-year and the latter 32% year-on-year. In the last few months, there have been four upwards revisions in these estimates as the firm continues to outperform in the ecommerce space.
On October 16, investment advisory Barclays maintained an Overweight rating on MercadoLibre, Inc. (NASDAQ:MELI) stock and lowered the price target to $1,550 from $1,625, noting there was investor fatigue around health of consumer debate heading into Q3 reports.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm Generation Investment Management is a leading shareholder in MercadoLibre Inc. (NASDAQ:MELI) with 580,023 shares worth more than $687 million.
In its Q3 2023 investor letter, Artisan Partners, an asset management firm, highlighted a few stocks and MercadoLibre, Inc. (NASDAQ:MELI) was one of them. Here is what the fund said:
“Top contributors to performance for the quarter included Latin American marketplace MercadoLibre, Inc. (NASDAQ:MELI). MercadoLibre rose as a result of continued share gains across key markets and supportive Brazilian regulations aimed at creating a level playing field in cross-border e-commerce.”
3. Booking Holdings Inc. (NASDAQ:BKNG)
Number of Hedge Fund Holders: 78
Booking Holdings Inc. (NASDAQ:BKNG) provides travel and restaurant online reservation and related services worldwide. The company recently announced that it would be appealing a decision by the European Union to block the purchase of Swedish flight booking provider Etraveli Group. Booking acquired Etraveli in a €1.63 deal in late 2021. Booking said the sale had been cleared by authorities in the US and the UK. Booking aims to combine two separate but complementary Europe-based businesses to deliver more options and competitive pricing.
On October 23, HSBC analyst Meredith Jensen initiated coverage of Booking Holdings Inc. (NASDAQ:BKNG) stock with a Buy rating and a price target of $3,650, noting that pandemic accelerated shifts in lifestyle, technology, and behaviors were shaping travel and leisure.
At the end of the second quarter of 2023, 78 hedge funds in the database of Insider Monkey held stakes worth $6.5 billion in Booking Holdings Inc. (NASDAQ:BKNG), compared to 77 in the preceding quarter worth $7 billion.
In its Q3 2023 investor letter, Ensemble Capital Management, an asset management firm, highlighted a few stocks and Booking Holdings Inc. (NASDAQ:BKNG) was one of them. Here is what the fund said:
“Booking Holdings Inc. (NASDAQ:BKNG) (+14.21%): Despite macroeconomic worries and inflation eating into global consumers’ ability to spend, households around the world continue to prioritize travel. While so called “revenge travel,” or increased travel spending after being stuck inside during COVID, has likely run its course, global hotel room nights have only recently returned to pre-COVID trends. As COVID has mostly ceased to have an impact on travel, other than in Asia where China’s extended lockdown means a recovery is still ongoing, growth going forward is likely to be more modest. But during COVID, Booking stayed on offense and has been taking market share. Notably, the company’s alternative accommodations offering has grown substantially and in recent quarters has grown faster than Airbnb.”
2. The Walt Disney Company (NYSE:DIS)
Number of Hedge Fund Holders: 92
The Walt Disney Company (NYSE:DIS) operates as an entertainment company worldwide. Media reports indicate that the company is close to selling operations in India in a deal with local giant Reliance Industries. As part of the deal, Disney would sell the Disney Star business in the country to the local firm for around $10 billion. However, the Indian firm values the business at around $7 to $8 billion. Losing streaming rights to cricket, a popular sport in India, has hurt Disney business in the country.
On October 31, Evercore ISI analyst Vijay Jayant maintained an Outperform rating on The Walt Disney Company (NYSE:DIS) stock and lowered the price target to $100 from $110, noting the firm was trying on a new model by splitting entertainment and sports focuses.
Among the hedge funds being tracked by Insider Monkey, Florida-based investment firm Citadel Investment Group is a leading shareholder in The Walt Disney Company (NYSE:DIS) with 9.3 million shares worth more than $832 million.
In its Q3 2023 investor letter, Madison Investments, an asset management firm, highlighted a few stocks and The Walt Disney Company (NYSE:DIS) was one of them. Here is what the fund said:
“During the quarter, we sold our positions in Bristol-Myers Squibb and The Walt Disney Company (NYSE:DIS). The Walt Disney Company is facing a difficult and uncertain transition in its core media business assets including the ESPN business and other linear media assets. These media assets are cash generative but face secular decline as consumers are cutting their expensive cable subscriptions and moving to alternative streaming options. This has resulted in a decline in operating profits for the media division. The media business has long-term fixed costs related to its sports broadcasting agreement with multiple sports leagues which will further pressure profits during this transition.”
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 278
Amazon.com, Inc. (NASDAQ:AMZN) engages in the retail sale of consumer products and subscriptions through online and physical stores. The European Union is set to review the purchase of iRobot, a vacuum firm, by Amazon by the beginning of next year. Amazon purchased iRobot last year in a deal worth nearly $1.6 billion. A review of the deal, which had been suspended in August, was set for hearing in November but now may be delayed until February of next year.
On October 27, DA Davidson analyst Tom Forte maintained a Buy rating on Amazon.com, Inc. (NASDAQ:AMZN) stock and raised the price target to $157 from $150, noting that the sales and profits were better than the consensus for the firm in the recent earnings.
At the end of the second quarter of 2023, 278 hedge funds in the database of Insider Monkey held stakes worth $34 billion in Amazon.com, Inc. (NASDAQ:AMZN), compared to 243 in the preceding quarter worth $25 billion.
In its Q3 2023 investor letter, White Falcon Capital Management, an asset management firm, highlighted a few stocks and Amazon.com, Inc. (NASDAQ:AMZN) was one of them. Here is what the fund said:
“There are comparable narratives involving NU Holdings, Amazon.com, Inc. (NASDAQ:AMZN), and Teck Resources, to name a few holdings from the White Falcon portfolio. Amazon constructed its logistics network and cloud computing infrastructure using yesterday’s currency, but it is poised to capitalize on this network with the inflated dollars of tomorrow. In essence, we believe we hold wonderful businesses with growing revenue streams and potential for operating leverage – all at reasonable valuations.”
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Disclosure. None. 14 Best Cyclical Stocks To Invest In is originally published on Insider Monkey.
