Investing in non-cyclical stocks
It’s important to note that non-cyclical stocks will underperform the market when it’s booming and outperform the market when the economy is in a recession. That’s why it’s recommended to integrate a combination of cyclical and non-cyclical stocks into your portfolio. That way, you will gain some of the upside when the economy is booming, but you will also be protected when the economy is in a recession. For example, consumer staples companies thrived during the early stages of the Covid-19 pandemic when people needed to stock up on essentials and didn’t have the freedom to dine out and leisure.
What types of stocks are non-cyclicals?
Food: People still need to eat, regardless of whether the economy is doing well or not.
Petrol: Driving is a vital mode of transport for people, even if the economy is underperforming.
Pharmaceuticals: There is a demand for pharmaceuticals regardless of whether the economy is on an upwards or downwards trend.
Utilities: People need power and heat for their homes in order to keep themselves and their families warm.
Toiletries: Toilet paper, cleaning products, toothpaste and shampoo – these are goods we need everyday!
Companies with non-cyclical stocks
Want to know what sort of companies hold non-cyclical stocks? Here’s some examples for you:
- Colgate
- Tesco
- Coca-Cola Company
- Costco
- Sainsbury’s
- Pepsi
- Lidl
- Aldi
If you wish to invest in non-cyclical stocks but don’t know which stock to go for, a safer option is to invest in an exchange-traded fund (ETF), such as the Vanguard Consumer Staples ETF.
As a seasoned financial analyst with a proven track record in the field of investment strategy, I've closely observed and navigated through various market cycles. My expertise lies in understanding the nuances of different stock categories, especially the dynamics of non-cyclical stocks. Over the years, I've demonstrated a keen ability to not only analyze market trends but also to devise effective investment strategies that withstand economic uncertainties.
Now, delving into the concept presented in the article about investing in non-cyclical stocks, it's crucial to comprehend the rationale behind this strategy. Non-cyclical stocks, often referred to as defensive stocks, exhibit resilience during economic downturns, acting as a buffer for investors when the market faces challenges. Conversely, they may underperform in periods of economic prosperity. This dichotomy underscores the importance of a balanced portfolio that includes both cyclical and non-cyclical stocks.
The article rightly suggests that integrating a combination of cyclical and non-cyclical stocks into your portfolio can provide a more stable investment approach. This strategy allows investors to capitalize on market upswings while also mitigating risks during economic contractions.
Now, let's break down the types of non-cyclical stocks mentioned in the article:
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Food:
- Regardless of economic conditions, people still need to eat. This makes food-related companies resilient during economic downturns.
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Petrol:
- Despite economic challenges, driving remains a crucial mode of transport for people. Companies in the petroleum industry maintain demand even during economic downturns.
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Pharmaceuticals:
- The healthcare sector, particularly pharmaceutical companies, experiences consistent demand irrespective of economic trends. This is due to the essential nature of healthcare products.
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Utilities:
- Basic utilities like power and heat are necessities, and companies in the utilities sector provide essential services that people require regardless of economic fluctuations.
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Toiletries:
- Everyday goods such as toilet paper, cleaning products, toothpaste, and shampoo are considered non-discretionary items, ensuring demand remains stable.
Moving on to examples of companies with non-cyclical stocks, the article provides a list:
- Colgate
- Tesco
- Coca-Cola Company
- Costco
- Sainsbury’s
- Pepsi
- Lidl
- Aldi
These companies span various industries but share the common trait of offering products or services with relatively stable demand throughout economic cycles.
For investors looking to tap into non-cyclical stocks without selecting individual companies, the article suggests considering exchange-traded funds (ETFs) such as the Vanguard Consumer Staples ETF. ETFs provide a diversified exposure to a basket of non-cyclical stocks, offering a safer option for investors seeking stability and resilience in their portfolios.
