• Print
  • Default text size A
  • Larger text size A
  • Largest text size A

Links provided by Fidelity Brokerage Services

fidelity-fbs-iconThese links are provided by Fidelity Brokerage Services LLC ("FBS") for educational and informational purposes only. FBS is responsible for the information contained in the links. FICS and FBS are seperate but affiliated companies and FICS is not involved in the preparation or selection of these links, nor does it explicitly or implicitly endorse or approve information contained in the links.

Published by Fidelity Interactive Content Services

Content for this page, unless otherwise indicated with a Fidelity pyramid logo, is published or selected by Fidelity Interactive Content Services LLC ("FICS"), a Fidelity company with main offices in New York, New York. All Web pages that are published by FICS will contain this legend. FICS was established to present users with objective news, information, data and guidance on personal finance topics drawn from a diverse collection of sources including affiliated and non-affiliated financial services publications and FICS-created content. Content selected and published by FICS drawn from affiliated Fidelity companies is labeled as such. FICS selected content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by any Fidelity entity or any third-party. Quotes are delayed unless otherwise noted. FICS is owned by FMR LLC and is an affiliate of Fidelity Brokerage Services LLC. Terms of use for Third-Party Content and Research.

Cyclical stocks gaining favor amid frothy market

  • By Jane Searle,
  • TheStreet.com
  • – 11/07/2013
  • Investing Strategies
  • Investing in Stocks
  • Market Analysis
  • Dividend-Paying Stocks
  • Growth Stocks
  • Stocks
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.

NEW YORK -- Cyclical stock are winning favor as the economy shows signs of growth and fund managers seek richer opportunities.

Consumer staples and insurance have helped fuel the Standard & Poor 500's (.SPX) meteoric climb this year, notching between 30 to 37% in 2013 while cyclical sectors real estate and technology hardware have posted more subdued returns of between 4 to 11%. The S&P has advanced 24%, poised for its best performance since 1997.

More investing ideas

Need more inspiration? The financial journalists at Fidelity Interactive Content Services can help.

But fund managers warn that rising valuations among defensive sectors coupled with an ongoing economic recovery translates into a better outlook for cyclical names. Money managers cite the likelihood of a fresh capital expenditure cycle - investment by corporates for growth rather than hoarding cash - as a potential trigger for better returns in cyclicals.

Jeffery Saut, Raymond James chief investment strategist, said his recent tour of the struggling Detroit area showed evidence of the pick-up with auto-plants working in overdrive.

"We are going to get a capital expenditure cycle in 2014 that will lift GDP towards 3%," Saut said in a phone interview. "And never underestimate the ability of the American consumer to spend money, even if they don't have it." Saut likes the consumer discretionary and energy sectors, citing stocks such as Apple (AAPL), Tempur Sealy (TPX), Weyerhaeuser (WY) and The Fresh Market (TFM) as presenting solid potential. Florida-based Saut helps oversee $400 billion in funds.

Others cite the rebound in manufacturing data as reason to back cyclicals.

"In general, cyclical companies are cheaper than defensives and stand to benefit more from any improvements to the global economy," Russ Koesterich, BlackRock's global chief investment strategist said in a note this week.

Koesterich said a rotation toward cyclicals had already begun - with these stocks gaining around 4.5% or roughly double as much as defensive sectors over the past three months. Koesterich, who helps oversee $4 trillion in funds, likes the IT and energy sectors along with U.S. manufacturers (such as chemical companies) that benefit from lower energy costs.

Some predict a longer timeframe for any uptick in cyclical stock returns, noting economic data remains mixed.

Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management, expects third and fourth quarter economic growth to remain subdued at between 1.6 to 1.8%. As such, he prefers a mix of defensive and cyclical sectors, such as industrials and information technology stocks, utilities and telecoms. The strategist, who helps oversee $236 billion, says valuations were hard to justify on both consumer discretionary and staples stocks - the latter trading at 17.2 times forward earnings.

Longer term, Jacobsen backs a brighter outlook for cyclical sectors on the basis of ongoing improvement in manufacturing, employment and economic growth. "Economic data is choppy now but it's more a positioning for 2014," Jacobsen said in a phone interview.

Even a modest increase in global growth should be sufficient to boost prospects for cyclical stocks, James Gaul of Boston Advisors said.

"Relative gains in defensive sectors are going to be limited [and] we're coming to a point where we will see whether multiple expansion [the rise in many defensive stock prices on the basis of higher earnings expectations] has been justified," the portfolio manager said in a phone interview. Boston-based Gaul helps oversee $2.5 billion in funds.

Nonetheless, skeptics remain. Scott Armiger, chief investment officer at Christiana Trust, pointed to a softening in global growth.

"Europe has barely emerged from its recession while US data shows weakening confidence and lower inflation," the Delaware-based manager said in a phone interview. Armiger, who helps oversee $8 billion in funds, is backing consumer staples, healthcare, and stocks such as CVS (CVS) and CostCo (COST). "We were pleased with the performance of staples in October and we're not ready to jump into cyclicals in a big way," he said.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
© 1996-2013 TheStreet.com Inc. All rights reserved.
Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.
Content for this page, unless otherwise indicated with a Fidelity pyramid logo, is published or selected by Fidelity Interactive Content Services LLC ("FICS"), a Fidelity company with main offices in New York, New York. All Web pages that are published by FICS will contain this legend. FICS was established to present users with objective news, information, data and guidance on personal finance topics drawn from a diverse collection of sources including affiliated and non-affiliated financial services publications and FICS-created content. Content selected and published by FICS drawn from affiliated Fidelity companies is labeled as such. FICS selected content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by any Fidelity entity or any third-party. Quotes are delayed unless otherwise noted. FICS is owned by FMR LLC and is an affiliate of Fidelity Brokerage Services LLC. Terms of use for Third-Party Content and Research.
fidelity-fbs-iconThese links are provided by Fidelity Brokerage Services LLC ("FBS") for educational and informational purposes only. FBS is responsible for the information contained in the links. FICS and FBS are seperate but affiliated companies and FICS is not involved in the preparation or selection of these links, nor does it explicitly or implicitly endorse or approve information contained in the links.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information.  Read it carefully.