Stock market: defensive stocks, cyclical stocks… how to arbitrate?

Defensive stocks, cyclical stocks, performance stocks… In the stock market, investors are spoiled for choice. But what exactly is it? The Income screens the different types of stocks.

On the stock exchange, companies are classified into different categories, depending on their economic activity, but also on the sector in which they operate.

Defensive, cyclical, speculative, yield… there is something for everyone. It is still necessary to know how to choose the right category at the right time. No crystal ball, no predictions. The secret is in the economic conditions. In times of crisis and recession, investors prefer defensive stocks over cyclical stocks.

It should be noted that the status of a company within the same industry may differ. In mass distribution, the profile of intersection is defensive when that of Casino is speculative.

It should also be noted that a company’s status is not set in stone. Take the example ofADP† The world’s number one in airport management faltered during the health crisis, weighed down by the decline in air traffic. From an initially defensive profile, the value moved towards cyclical values.

But as the pandemic begins to gain ground in Europe, ADP appears to be gradually regaining its original status. His new strategic plan is convincing. Investors are betting on a strong restart of passenger traffic. The stock’s performance on the stock market testifies to this: it is up more than 20% since the beginning of the year, when the SBF 120, its benchmark index, fell by 10%.

Defensive, speculative, growth, yield stocks… Follow the guide to understand everything.


Growth Stocks

Are considered growth stocks, all companies that grow faster than the economy. We find in this category the actors of luxury or technological stocks. They perform well, offer good visibility and pay dividends.

On the other side of the coin, valuation ratios (price/profit, enterprise value/gross operating surplus) are extremely high. Take the example of Dassault Systems† The stock is trading at 38 times expected net earnings for the current year.

If the stake is worth the candle, the current context characterized by the rise in interest rates is not favorable for this type of value.


Cyclic Values

As their name suggests, cyclical stocks depend on the economic cycle. They loosen in times of crisis, but can peak in recovery. This is the case for car inventories that are currently experiencing supply tensions. The title Stellantis decreased by more than 20% since the beginning of the year.

On the other hand, recycling groups or even mining companies have performed well recently, taking advantage of the surge in raw materials. Driven by rising nickel or manganese ore, Eramet for example, an 84% jump in just six months.


Defensive Values

Unlike cyclical stocks, defensive stocks are less sensitive to economic turbulence and provide security for investors. There are community service companies or even those of large scale distribution.

Take the example of Carrefour. In 2020, the retail giant signed an exceptional vintage amid a health crisis. The distributor has achieved its best results in twenty years.

Please note: in a severe crisis (stock market crash), these shares also fall, but the decline is more limited than average.


Yield Values

This status applies to stocks that regularly pay a generous dividend. These are telecom operators, audiovisual groups, highway concessionaires, etc.

Investors are looking for returns in these types of securities, namely a good ratio between the dividend paid and the price of a share. This is the case ofOrange† The stock offers a return of 6.5%.


speculative values

Aimed at the most knowledgeable investors, speculative stocks are the ones that will brighten their portfolio the most. This particularly includes the biotech sector. This kind of action is a double-edged sword. All it takes is news – good or bad – to make the stock market better or worse.

Due to their high volatility, they must be monitored regularly and should not represent more than 5 to 10% of the total value of a portfolio, despite sometimes very attractive promises.

Leave a Comment