7 Cyclical Stocks That Make Sense In a Volatile Market

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Despite many predictions of an imminent, and possibly severe, market correction, 2021 has been a great year for investors. And that’s particularly true for investors who invested in cyclical stocks. This group of stocks was hit hard as the economy ground to a halt. This makes sense because cyclical stocks move in the direction of the broader economy.

But that’s also why, almost immediately, many of these stocks began to come back. And with the economy reopening, these stocks continue to show strength.

Cyclical stocks are commonly dividend into companies that manufacture durable goods, non-durable goods, or deliver services. At any given time, one or more of these sectors has outperformed others. But for the most part investors that bought into cyclical stocks continue to be rewarded.

In this presentation, we’ll take a look at seven cyclical stocks that are proving to be resilient even as the market continues to baffle even the most experienced investors.

#1 - Nucor (NYSE:NUE)

Perhaps no stock illustrates the anticipation for the proposed infrastructure bill than Nucor (NYSE: NUE), the largest steel company in the United States. The company is expected to play a major role in rebuilding America’s bridges and tunnels.

And the company is coming off another strong earnings report and citing a stronger, and faster-than-expected U.S. recovery from the pandemic. This is requiring the company’s customers to restock depleted inventories. Plus, steel prices are much higher than they were pre-pandemic. The company’s mills are already operating at near 100% capacity and that does not take into account the additional business that would come from the infrastructure bill.

If investors need any more reason to jump on this cyclical stock, the company is planning to return 40% of its net income to shareholders with dividends and share repurchases. And the company has been increasing its dividend for the last 48 consecutive years, which makes it a Dividend Aristocrat.

About Nucor

Nucor Corporation engages in manufacture and sale of steel and steel products. It operates in three segments: steel mills, steel products, and raw materials. The Steel Mills segment produces hot-rolled, cold-rolled, and galvanized sheet steel products; plate steel products; wide-flange beams, beam blanks, and H-piling and sheet piling structural steel products; bar steel products, such as blooms, billets, concrete reinforcing and merchant bars, and engineered special bar quality products; and engages in the steel trading and rebar distribution businesses. Read More

Current Price: $169.80
Consensus Rating: Hold
Ratings Breakdown: 3 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $193.14 (13.7% Upside)

#2 - NextEra Energy (NYSE:NEE)

In terms of retail electricity sales, NextEra Energy (NYSE: NEE) is the largest electric utility in the United States. And like many utility companies, NextEra has a strong dividend history with 42.49% growth over the last three years.

But wait a second. Aren’t utility companies generally considered to be defensive stocks? That would be true except that NextEra is not exclusively a utility company. The company also owns NextEra Energy Resources, which is leading the way in America’s pursuit of clean energy.

This gives what would normally be considered a defensive play some bullish upside. And that’s reflected in the NEE stock price which has grown 13% in 2021. Clean energy is becoming a reality as the price catches up to the technology. NextEra is the world’s largest generator of renewable energy from wind and solar. And it would appear that solar will play a major role in our clean energy future. Solar power is expected to move from 3% to over 40% of power generation by 2035.

About NextEra Energy

NextEra Energy, Inc, through its subsidiaries, generates, transmits, distributes, and sells electric power to retail and wholesale customers in North America. The company generates electricity through wind, solar, nuclear,natural gas, and other clean energy. It also develops, constructs, and operates long-term contracted assets that consists of clean energy solutions, such as renewable generation facilities, battery storage projects, and electric transmission facilities; sells energy commodities; and owns, develops, constructs, manages and operates electric generation facilities in wholesale energy markets. Read More

Current Price: $72.85
Consensus Rating: Moderate Buy
Ratings Breakdown: 11 Buy Ratings, 3 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $71.93 (1.3% Downside)

#3 - Walt Disney Company (NYSE:DIS)

The Walt Disney Company (NYSE: DIS) continues to show that the whole of its company is greater than any of its individual parts. However, the individual parts are fairly attractive. In fact, it was the company’s streaming service, Disney+, fortuitously launched in late 2019 that helped the company weather the pandemic.

Today, with the company’s theme parks open and the production studios filming again, investors are likely to see DIS stock move past its 52-week high. Due to the Delta variant, it will take some time for Disney to see its theme park revenue rise to pre-pandemic levels. And analysts will also have to wait and see how successful the company will be at passing higher costs on to their guests. The company recently reinstituted its annual pass. The price is pretty close to what it was before the pandemic, but it comes without a couple of significant benefits.

True, the House of Mouse did suspend its dividend at the onset of the Covid-19 pandemic. However, Disney’s CFO Christine McCarthy has reiterated that Disney anticipates making dividends and share repurchases a part of its capital allocation strategy.

About Walt Disney

The Walt Disney Company operates as an entertainment company worldwide. It operates through three segments: Entertainment, Sports, and Experiences. The company produces and distributes film and television video streaming content under the ABC Television Network, Disney, Freeform, FX, Fox, National Geographic, and Star brand television channels, as well as ABC television stations and A+E television networks; and produces original content under the ABC Signature, Disney Branded Television, FX Productions, Lucasfilm, Marvel, National Geographic Studios, Pixar, Searchlight Pictures, Twentieth Century Studios, 20th Television, and Walt Disney Pictures banners. Read More

Current Price: $105.44
Consensus Rating: Moderate Buy
Ratings Breakdown: 23 Buy Ratings, 2 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $126.46 (19.9% Upside)

#4 - Advanced Micro Devices (NASDAQ:AMD)

Despite being one of the hottest names in the semiconductor industry, Advanced Micro Devices (NASDAQ: AMD) has had a rocky path to success in 2021. After ending 2020 at just over $90 per share, it took AMD stock the better part of seven months to break the $100 barrier. And this was despite AMD stock being a favorite among the WallStreetBets subreddit community.

Now that it has, bulls may be wondering how high it can go. AMD supplies microprocessors and graphics semiconductors and has been one of the leading suppliers to the graphic processing unit (GPU) space. However, the company is also making inroads in the central processing unit (CPU) space as it relates to data centers. As it does, it is taking market share from Intel (NASDAQ:INTC).

But what many analysts and investors will love to see is the company’s impressive free cash flow which should pass $5 billion next year. And when combined with its gross margin, and with the global chip shortage likely to last into 2022, AMD stock looks like a good buy.

About Advanced Micro Devices

Advanced Micro Devices, Inc operates as a semiconductor company worldwide. It operates through Data Center, Client, Gaming, and Embedded segments. The company offers x86 microprocessors and graphics processing units (GPUs) as an accelerated processing unit, chipsets, data center, and professional GPUs; and embedded processors, and semi-custom system-on-chip (SoC) products, microprocessor and SoC development services and technology, data processing unites, field programmable gate arrays (FPGA), and adaptive SoC products. Read More

Current Price: $153.62
Consensus Rating: Moderate Buy
Ratings Breakdown: 27 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $183.94 (19.7% Upside)

#5 - 3M Corporation (NYSE:MMM)

Prior to the Covid-19 pandemic, the stock of 3M Corporation (NYSE: MMM) was not a good buy. The stock had dropped 31% from its all-time high set in January 2019 to the beginning of 2020. However, the company was unquestionably a pandemic winner as it helped supply personal protective equipment.

3M stock is currently trading near its 52-week high as well as its consensus price target. However, since the company released earnings in late July, MMM stock has received several boosts to its price target. And now the stock is delivering one of the strongest Return on Equity (ROE) ratios among cyclical stocks. ROE is a measure of how efficiently a company puts its capital to use.

To that end, the company reported that it returned $1.4 billion to shareholders. This took the form of dividends and share repurchases. And speaking of its dividend, 3M has increased its dividend in each of the last 59 years making it part of the elite Dividend King club.

About 3M

3M Company provides diversified technology services in the United States and internationally. The company's Safety and Industrial segment offers industrial abrasives and finishing for metalworking applications; autobody repair solutions; closure systems for personal hygiene products, masking, and packaging materials; electrical products and materials for construction and maintenance, power distribution, and electrical original equipment manufacturers; structural adhesives and tapes; respiratory, hearing, eye, and fall protection solutions; and natural and color-coated mineral granules for shingles. Read More

Current Price: $96.35
Consensus Rating: Hold
Ratings Breakdown: 2 Buy Ratings, 8 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $103.70 (7.6% Upside)

#6 - Costco (NASDAQ:COST)

Costco (NASDAQ: COST) was one of the biggest winners throughout 2020. As the company’s loyal membership dutifully filled their carts and their pantries, shares of COST stock soared 29% from its pandemic low until the end of 2020.

And Costco stock is up another 19% in 2021 despite suffering a steep selloff in March. The company does face some headwinds. First, the economy is reopening which may change consumers' shopping habits. And second, Costco consumers are seeing the effect of inflation in the groceries they purchase. However, one of the strengths of Costco is its membership fee. And the company still has high member retention.

Six analysts have boosted their price target on COST stock since the company last reported earnings. And one of those analysts, Loop Capital, gives the company a $500 price target. And even if the company doesn’t quite achieve that rate of growth, it still delivers a safe dividend that it has increased each year for the last 16 years.

About Costco Wholesale

Costco Wholesale Corporation, together with its subsidiaries, engages in the operation of membership warehouses in the United States, Puerto Rico, Canada, Mexico, Japan, the United Kingdom, Korea, Australia, Taiwan, China, Spain, France, Iceland, New Zealand, and Sweden. The company offers branded and private-label products in a range of merchandise categories. Read More

Current Price: $763.41
Consensus Rating: Moderate Buy
Ratings Breakdown: 18 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $694.48 (9.0% Downside)

#7 - Sysco (NYSE:SYY)

The foodservice business was one of the hardest-hit sectors during the global pandemic. While some restaurants are open, there are many that remain shut. But for many schools and entertainment venues, 2020 was a complete washout. The Delta variant is causing some jitters, but it appears unlikely that there will be more extreme mitigation measures.

And that’s bullish for a company like Sysco (NYSE: SYY) who is the global leader in selling, marketing, and distributing food products to venues such as these. SYY stock has more than doubled since hitting its pandemic low last March. However, the growth has been more muted in 2021, with the stock up just about 10%.

The consensus opinion of analysts is that the stock has another 9% to go, and that may be too low. In the company’s most recent earnings report, it reported that its free cash flow increased by more than 110% year-over-year and the stock is expected to grow at a compound annual growth rate (CAGR) of 22.9% over the next five years.

About Sysco

Sysco Corporation, through its subsidiaries, engages in the marketing and distribution of various food and related products to the foodservice or food-away-from-home industry in the United States, Canada, the United Kingdom, France, and internationally. It operates through U.S. Foodservice Operations, International Foodservice Operations, SYGMA, and Other segments. Read More

Current Price: $74.62
Consensus Rating: Moderate Buy
Ratings Breakdown: 7 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $84.56 (13.3% Upside)

In the introduction to this presentation, I noted that 2021 has been a good year for investors who owned equities. Although many threats remain on the horizon, the worst hasn’t emerged. And that is keeping bullish sentiment in stocks high.

However, it hasn’t always been a smooth ride. Investors have cycled back-and-forth between growth stocks and value stocks. Along the way, there have multiple mini bubbles that have fizzled out. Electric vehicles, biotech, even the FAANG stocks have all corrected at one point.

That’s another reason for investors to seek the diversification that comes from cyclical stocks. Many of these stocks won’t provide aggressive stock price growth, but during volatile bull markets like the kind we continue to experience, the diversity of cyclical stocks can provide stability.

Less risk-tolerant investors can look at exchange-traded funds (ETFs) as a way to help add cyclical stocks to their portfolio. One of the top choices is the Invesco S&P 500 Equal Weight Consumer Discretionary ETF (NYSEARCA:RCD), an “equal weight” fund which means no one position is more than 1.9% of the entire fund’s holdings