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Cyclical stock

A stock whose earnings rise and fall with the economic cycle.

FundamentalsIntermediate

Definition

Cyclical industries such as autos, airlines, homebuilders, materials and many industrials do well when the economy grows and suffer when it slows. Their profits swing more than the average company's.

Watch out for

A low P/E at peak earnings can be a trap, because earnings may be about to fall. Cyclicals are often better judged through the cycle than on one year's numbers.

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