As a stock marketer who doesn't want to invest in stocks that perform no matter any economic stability. We all want them, right!! But what are these stocks called? How to identify them, and what is different about these stocks? We cover it all in this article, and to begin with, these stocks are called Non-Cyclical Stocks.
Non-Cyclical stocks are those stocks that outperform their industry in the stock market despite the economic instability. Such stocks are often related to the daily needs of the common man and mark importance and priority for them—for example, food industry, LPG, Power, and a few more.
An alternative name for the cyclical stocks is defensive stocks because these stocks are defensive against economic instability. This is because of the high demand for goods and services that the consumers cannot sacrifice. A classic case is a toothpaste that the consumers buy repeatedly and cannot sacrifice or live without brushing teeth for days. Stocks of such companies are most of the time in great interest of the marketers due to continuous demand.
Utility companies are also a good example of non-cyclical stocks; companies that deal with resources such as power and gasoline or fuel are a great example of these. Utilities are non-tack able services that ensure continuous demand and increase the share turnover over a period.
Cyclical and Non-Cyclical stocks are closely related to the share pricing affected due to economic stability or instability. However, there is a huge difference between how both cyclical and non-cyclical stocks impact the company and the investors and how they actually work.
The cyclical stocks are those which are directly affected by the economic changes and depend upon a cyclical order of business cycles. When the business is in demand, usually when it is season-specific, the product value increases, which leads to more sales and greater share turnover; during this time, it is considered the best to sell the stocks and book maximum profit. Similarly, when the business is in an off-season state, it is natural to get fewer sales and stock prices to go down; this leads to less share turnover and higher stock volatility, and low liquidity. This is the best period to buy the stocks and then sell them during the season period when the stock prices are high.
The non-cyclical stocks are slightly different from the vicious business cycles. Here, there is no season-specific or period-specific demand that can raise or drop the stock prices. Instead, in non-cyclical stocks, the products and goods are demanded regularly. This is because the goods and services are related to the everyday needs of the common man, such as food, water, and other utilities.
Companies tend to make these regular goods as a part of the everyday life of common people and then extend them to be luxury goods. When the prices are high, the consumer feels luxury due to direct competition with the low budget products, the company's book profit, and the stock prices increase. This also reduces the stock volatility and increases the liquidity factor.
Non-cyclical stocks though regularly in demand, do not face a major setback with economic instability. This sets them to be different from the cyclical stocks that can see a downhill though the products are in demand, the economic changes are not supporting the production and sales.
Non-Cyclical stocks are good for investment as they are in regular demand and are capable of handling economic instability. However, one needs to have solid research about the company, understand the customer trust, and look for the competitors.
Solid research is important before you invest in non-cyclical stocks; to start with, the investors can look into different aspects such as performance growth, brand value, expense ratio, and historical share turnover. If the company has been consistently failing, there are no great brand marketing strategies, and there are no innovations as per trends and needs, those non-cyclical stocks might not be a good option to invest in. There are great examples where the products outperformed during the stone age of business but slowly depleted and became non-existent in the market.
Apart from the solid research, an important metric that one needs to consider while investing in non-cyclical stocks is customer trust. Many a time, a brand may look all shiny, but the customer feedback, buy again tempt, and the service may not be good at the ground level. Ultimately, the customer is the one whose needs are to be satisfied, and the company which can do that is the best company to invest in. So, we consider this ground-level research about the customer opinions as they directly impact the performance of the company.
Competitive edge is an important metric that helps you evaluate the future of the non-cyclical stocks that you are investing in. Suppose the competition is outperforming the non-cyclical stock that you are investing in and all the other companies of the industry; naturally, it will be the best. Besides, one might not know what other companies are strategizing about to be the best. In this scenario, it is best to research all the competitors in the industry and analyze if your choice of non-cyclical stock is best.
Non-Cyclical stocks are those stocks that outperform their industry in the stock market despite the economic instability. These are also called defensive stocks as they are not majorly impacted by economic or cyclic changes. Utility companies are also a good example of non-cyclical stocks; companies that deal with resources such as power and gasoline or fuel are a great example of these. A few other examples are food, water, and power.
Cyclical and non-cyclical stocks are different from each other based on the demand and what is in the demand factors. Both of these are good stocks to invest in but need to be backed by solid research. The high risk and return are common inputs in both these types of stocks.
Non-Cyclical stocks are those stocks that outperform their industry in the stock market despite the economic instability and are in regular demand.
Cyclical and non-cyclical stocks are different from each other based on the demand and what is in the demand factors.
A few factors to consider while investing in non-cyclical stocks are solid research about the company, understanding the customer trust, and competitive edge.