12 Best Counter Cyclical Stocks to Invest in

Ramish Cheema
9 min read

In This Article:

In this piece, we will take a look at the 12 best counter cyclical stocks to invest in. If you want to skip our introduction of what counter cyclical stocks are and how they behave with respect to the economy and other macroeconomic indicators, then you can skip ahead to take a look at the 5 Best Counter Cyclical Stocks to Invest in.

When we talk about dividing stocks based on their share price behavior in response to economic events and news, the two widely used categories are consumer cyclical and consumer defensive. As their titles suggest, consumer cyclical stocks are those that follow economic cycles. The latter, on the other hand, are also called counter cyclical stocks, and they are considered as a buffer against the broader stock market downturns that often take place if investors believe that the economy is in trouble.

This bifurcation of the stock market between cyclical and counter cyclical stocks is based on their underlying business models. Cyclical socks are typically present in high growth industries such as consumer technology, artificial intelligence, and biotechnology. This means that their business models and markets are dependent on factors such as consumer purchasing power, inflation, and interest rates. These three major economic indicators fluctuate with the economy, and when economic performance is robust and authorities are taking a proactive approach to managing monetary policy, then purchasing power is stable and inflation and interest rates are typically low.

On the flip side, in the case of poor economic performance, both businesses and consumers find it difficult to splurge on luxury items or pricey items such as artificial intelligence processors from NVIDIA Corporation (NASDAQ:NVDA). These processors are believed to cost as much as a whopping $2 million a piece. Consequently, if a business is struggling during an economic downturn or capital is hard to raise due to high interest rates, then companies might be unwilling to buy these chips. As a result, NVIDIA becomes a cyclical stock.

While NVIDIA's consumer or enterprise products are typically considered a luxury, after all, few people need a GPU to just live, stocks such as the mega retail giant Walmart Inc. (NYSE:WMT) are counter cyclical stocks. To be clear, counter cyclical does not imply that if there is say a recession in America then Walmart's shares will rise. Instead, it means that in such a scenario, the stock will tend to lose a smaller portion of its value when compared to the high growth cyclical stocks that we've identified above.

Recommended Stories