The Winning Strategy for Cyclical Stocks: How to Ride the Waves in 2025?

Many investors lose their way in the pursuit of growth stocks and dividend stocks, but they overlook a huge opportunity—cyclical stocks(cyclical stock). When the economic recovery sounds its horn, if your portfolio remains dull and lackluster, the problem is likely here. The economy is growing, but you haven’t captured the explosive gains brought by cyclical stocks. Today, let’s delve into six cyclical stocks to watch in 2025 and how to use them to ignite your investment returns.

Understanding Cyclical Stocks: Why Are They So Special?

What are cyclical stocks?

Cyclical stocks are securities whose earnings and stock prices fluctuate with the economic cycle. The performance of these companies is closely tied to the overall economic trend—when the economy expands, they earn big; when it contracts, they struggle.

These cyclical fluctuations can span 1 year, 5 years, or even 10 years, but there is no fixed pattern. What truly determines their performance is market supply and demand. Once the economy begins to rebound or slip into recession, the fate of cyclical stocks is reshaped—during expansion, their stock prices and profits soar; during contraction, they fade into the background.

The Four-Stage Cycle of Cyclical Stocks

Recovery: The economy clears up, growth restarts
Peak: Economic growth reaches its zenith, market prospers
Recession: The economy begins to decline, growth slows down
Trough: The economy hits bottom, outlook is bleak

The Realm of Cyclical Stocks: Which Industries Can’t Escape the Cycle?

Cyclical stocks are mainly distributed across the following sectors:

• Shipping and Logistics: Transportation industry shows obvious fluctuations with global trade prosperity
• Refining and Energy: Oil prices and crude oil demand are deeply affected by economic health
• Agriculture and Food: Crop yields and prices are closely linked to economic cycles
• Petrochemical and Chemical: Demand varies with industrial activity
• Mining: Prices of raw materials like coal follow the economic cycle
• Steel and Metallurgy: Capacity utilization rates are tightly linked to infrastructure investment

Six Major Cyclical Stocks to Mine in 2025

1. NVIDIA (NVDA): The Absolute Winner in the AI Wave

As a leader in graphics processing chips and AI technology, NVIDIA is experiencing exponential growth. The economic recovery is accelerating corporate investments in AI and data centers, and NVIDIA dominates over 80% of the AI chip market. Profit growth in 2025 is expected to reach 35%.

Despite a P/E ratio as high as 40, its PEG ratio is only 1.2, making it quite valuable. The company holds over $20 billion in cash with almost no debt, providing ample room for growth.

2. Caterpillar (CAT): Beneficiary of Infrastructure Boom

Global heavy machinery giant Caterpillar is enjoying the benefits of infrastructure investments. The US infrastructure bill totals $1.2 trillion, with strong growth in Asian and South American markets, pushing its 2025 revenue growth forecast to 8-10%.

The stock’s P/E is only 15, well below industry average. Unfulfilled orders amount to $30 billion, indicating strong demand. Its tradition of continuous dividend increases over 25 years demonstrates stability, making it a high-quality choice among cyclical stocks.

3. JPMorgan Chase (JPM): Winner in Falling Interest Rate Environment

As the largest bank in the US, JPMorgan Chase will benefit from the rate-cutting cycle. The Federal Reserve has begun lowering interest rates in late 2024, with another 3-4 cuts expected in 2025, accelerating loan growth and potentially increasing profits by 11%.

The stock’s price-to-book ratio is only 1.8, far below its 16% ROE. Meanwhile, its CET1 capital adequacy ratio stands at 14.5%, indicating a solid financial foundation.

4. ArcelorMittal (MT): Signal of Steel Revival

Global steel giant is experiencing an industry revival. Increased infrastructure and manufacturing investments worldwide are expected to push steel prices up by 15-20% in 2025. China’s economic stimulus policies will also boost steel demand.

The stock’s P/E ratio is only 5, creating a rare low-price opportunity. A 15% free cash flow yield provides strong support for share buybacks and dividends. The company is investing in clean steel technology, aiming to reduce CO2 emissions by 30% before 2030, aligning with ESG trends.

5. LVMH (LVMUH): The Unbeatable Legend in Luxury Market

LVMH, with 75 top luxury brands, is riding the wave of global wealth consumption. Even during economic downturns, high-net-worth individuals maintain strong demand; China’s economic recovery will further boost sales in 2025.

With a gross profit margin of 65%, far ahead of the industry, ten years of revenue and profit growth prove its competitiveness. Founder Bernard Arnault owns over 40%, and this high level of personal stake shows his firm confidence in the company’s prospects.

6. Lennar Corporation (LEN): The Pioneer of Real Estate Recovery

Top US homebuilder Lennar is about to benefit. Housing loan rates are expected to fall below 5.5% in 2025. Aging housing stock and Millennials entering the home-buying age will keep new home demand rising.

The stock’s P/E is only 10, below industry average. The company owns over 300,000 undeveloped acres bought at low prices during market downturns. With a 21% profit margin and construction speed 15% faster than competitors, it relies on advanced building technologies.

Deep Logic Behind Investing in Cyclical Stocks

Opportunities in Sub-Sectors

Semiconductor Industry Chain: Chip manufacturers like ASML, MediaTek, SK Hynix, and Qualcomm are driven by AI and tech infrastructure booms, with industry growth expected at 15% in 2025.

Automobile Manufacturing: Companies like Volkswagen, Hyundai, BMW, and BYD are benefiting from delayed consumer demand, with global new car sales forecasted to grow by 8%.

Financial Sector: JPMorgan Chase, Goldman Sachs, and Bank of America will benefit from rising asset prices and increased investment activity during economic recovery.

Key Points to Master Before Investing in Cyclical Stocks

Four Critical Features

1. The Shackles of Economic Cycles
The fate of cyclical stocks is tightly linked to the economic cycle. During recessions, prices fluctuate wildly, requiring strong psychological resilience. Typical sectors include mining, steel, and real estate.

2. Market Demand Dominance
Performance depends entirely on market prosperity. When demand is strong, stock prices soar; when demand shrinks, they plummet. Supply-side changes are directly reflected in stock prices.

3. The Double-Edged Sword of Price Volatility
High volatility means high risk, but also creates arbitrage opportunities for savvy investors. Those who can catch market turning points can profit handsomely.

4. External Risks Are Everywhere
Policy changes, global economic shocks, geopolitical factors—all can disrupt the cycle of cyclical stocks. Investors must stay alert at all times.

Investment Returns and Risks

Returns
✅ Huge profit margins, investors with strong risk tolerance can achieve substantial short-term gains
✅ Economic cycles are predictable; investors can formulate forward-looking strategies accordingly
✅ Combining with other asset classes can help build a more balanced portfolio

Risks
❌ High volatility can cause weak-hearted investors to panic and suffer short-term losses
❌ Requires deep economic knowledge and analytical skills to seize the right timing
❌ External shocks like macro policies and global financial conditions are hard to predict
❌ Not suitable for conservative investors seeking stable wealth growth and long-term preservation

Cyclical Stocks vs. Defensive Stocks

Contrasting sharply with cyclical stocks are defensive stocks (Non-cyclical or Defensive Stocks). These companies produce daily necessities, and demand remains steady regardless of economic conditions.

Typical representatives include:

• Coca-Cola (daily beverages)
• Johnson & Johnson (healthcare)
• Tesco (food retail and daily goods)
• Diageo (alcoholic beverages)
• NextEra Energy (utilities infrastructure)

These stocks tend to be less volatile but offer limited returns, making them the first choice for conservative, steady investors.

Final Reflection: Find Your Own Investment Rhythm

Once you understand the characteristics of different stock types, your investment decisions will become markedly different. Cyclical stocks require investors to accurately grasp economic cycles and understand the interaction between grassroots business operations and supply-demand dynamics.

Being able to see the underlying economic drivers behind a cyclical stock and judge which phase of the cycle it is in often determines the success or failure of your investment. Deeply understanding this will help you seize fleeting opportunities amid market fluctuations rather than passively following the tide.