Ford Motor Company (F), Caterpillar Inc. (CAT), Cemex SAB de CV (ADR) (CX): Three Cyclical Stocks to Consider as Monetary Expansion Ends

As the sustainability of the U.S. economic recovery became more apparent to investors, stocks pushed the major benchmarks higher. But not everything came up roses, as it became apparent that the Federal Reserve (Fed) might begin to tweak monetary policy going forward.

The defensive sectors were hit hardest as investors pondered the recent words of Fed Chairman Bernanke. The nervousness that surfaced in May saw three of the S&P 500’s defensive sectors fall hard: utilities, telecommunications and consumer staples dropped by 9.58%, 7.44% and 2.39%, respectively.

I think this trend is here to stay and it might be the time to take some long positions in cyclical companies. Here are three high quality and fairly valued cyclical stocks that could be great investments given the ongoing US economic recovery.

Ford Motor Company (NYSE:F)

The car era is not over

Ford Motor Company (NYSE:F) is not only the best US car company, but also still trades at a fair price for its value. Even after its 22.8% year to date gain, I think Ford Motor Company (NYSE:F) could be a good long term holding.

Despite the lack of near term catalysts, Ford Motor Company (NYSE:F) appears to be firing on all cylinders operationally and the company is close to a great milestone: reaching breakeven in Europe. For the first quarter this year, Ford Motor Company (NYSE:F) reported adjusted EPS of $0.41, beating consensus estimates by almost 11% and delivering much better than expected results for its European operations. Even if it sounds counterintuitive for a US car company, shrinking losses in Europe (estimated at $2 billion in 2013) will likely be the primary driver of earnings growth for Ford over the next few years.

Trading at a 10.9 P/E, 5.8 EV/EBITDA and paying a 2.55% cash dividend yield, I think Ford is still a compelling choice.

The construction to mining machinery world-wide leader

Even when Caterpillar Inc. (NYSE:CAT) reported a first quarter earnings miss, I think the reasons for such a miss were temporary. Total sales declined 17% year over year largely due to inventory cuts and moderate demand. Those events were expected and I suspect the inventory glut should not last more than a few more quarters. On the other hand, good news came from more resilient factors. Operating margins, for example, were up by 25% thanks to better expense management and lower costs of materials.

Besides, Caterpillar Inc. (NYSE:CAT) announced a resumption of its share repurchase plan, and I expect the buy-back to go as high as $1 billion. Even while many questions — such as the amount of inventory that has yet to be burned — remain unanswered, I think Caterpillar Inc. (NYSE:CAT) is a resilient company that has built a strong business and should perform well going forward.

Trading at a 12.8 P/E, 9.2 EV/EBITDA and paying a 2.42% cash dividend yield, Caterpillar Inc. (NYSE:CAT) is an option to consider.