Seize the benefits of the economic recovery! These 6 cyclical stocks to watch in 2025

Where are the investment opportunities in 2025? Many people are still holding onto growth stocks and dividend stocks, but they overlook a category of stocks that can surge during economic recovery—the “treasure trove”—cyclical stocks. When the economy starts to pick up, these stocks often outperform the market by over 50%. Unfortunately, many don’t know how to find them.

If your investment portfolio remains stagnant during an economic upswing, chances are you’ve stepped into a trap. Today, we’ll delve into this overlooked investment goldmine.

What Are Cyclical Stocks? One Sentence to Understand Instantly

Cyclical Stocks (Cyclical Stock) are characterized by one key word—“follow.” They dance with the economic cycle: when the economy is good, their stock prices soar; when the economy is weak, they plummet sharply.

The profits and revenues of these companies don’t grow steadily but fluctuate in waves—sometimes reaching peaks, sometimes hitting lows. These wave cycles can last 1, 5, or even 10 years, but they follow a clear pattern: the battle between supply and demand.

Breaking it down, the economy has four key phases:

🔹 Recovery Stage: The economy emerges from recession, with increasing corporate orders—this is the explosive point for cyclical stocks.

🔹 Peak Stage: The economy is booming, demand is strong, and company profits reach their zenith.

🔹 Recession Stage: The economy begins to weaken, demand softens, and stock prices start to retreat.

🔹 Bottom Stage: The economy hits its lowest point, but this is often the best opportunity to get in.

What Do Cyclical Stocks Look Like?

To judge whether a stock is cyclical, look at its industry—it’s pretty straightforward:

• Shipping & Logistics: Fleet size and freight rates fluctuate with global trade health.
• Refining & Petrochemicals: Oil prices and product prices are directly linked to macroeconomic conditions.
• Agricultural & Food: Prices of agricultural products show clear cycles, influenced by global supply and demand.
• Coal & Energy: Energy demand is highly correlated with GDP growth.
• Steel Manufacturing: A barometer of infrastructure investment, with obvious cyclical divergence.
• Semiconductors: Driven by tech cycles that cause demand fluctuations.

The 6 Most Worthy Cyclical Stocks to Jump Into in 2025

1. NVIDIA (NVDA): Direct beneficiary of the AI wave

This chip giant already dominates 80% of the global AI chip market. Although its valuation isn’t cheap (P/E around 40), its growth rate (PEG only 1.2) makes it worth it.

Expected profit growth in 2025 is 35%. Traditionally, this doesn’t look like a cyclical stock but more like a super-growth stock. But don’t be fooled—if AI demand cools, the stock price could plunge. Currently, it holds $20 billion in cash with almost zero debt, a solid defensive move.

Entry logic: Economic recovery → increased data center investments → explosive AI chip demand

2. Caterpillar (CAT): The must-have stock for infrastructure frenzy

The global leader in construction machinery, from excavators to large cranes. The US $1.2 trillion infrastructure plan continues to generate demand, and infrastructure investments in Europe and Asia are accelerating.

The P/E ratio is only 15, with a backlog of $30 billion—meaning its business is booked for years ahead. Revenue is expected to grow 8-10% in 2025, and it has increased dividends for 25 consecutive years.

Most impressive: It has enough land reserves for future development, many purchased during downturns at low prices.

Entry logic: Global economic recovery → infrastructure spending surge → demand for construction machinery skyrockets

3. JPMorgan Chase (JPM): The big winner in the rate-cutting cycle

The Federal Reserve has started cutting rates at the end of 2024, with 3-4 cuts expected in 2025. What does this mean for banks? Lending will boom, net interest margins may narrow but overall lending volume will compensate.

JPM’s P/B ratio is only 1.8, very cheap for a bank with a 16% ROE. More importantly, its CET1 capital adequacy ratio is 14.5%, indicating strong risk resistance.

Entry logic: Rate cuts → increased consumer and corporate borrowing → higher net interest income

4. ArcelorMittal (MT): The spring of the steel industry has arrived

The world’s largest steel producer. Steel prices are expected to rise 15-20% in 2025, driven by global infrastructure investment and China’s economic stimulus.

Its P/E ratio is only 5, extremely cheap across industries, with a free cash flow yield of 15%—meaning it can continuously buy back shares and pay dividends. Plus, it’s investing in clean steel technology, aiming to cut carbon emissions by 30% before 2030, aligning with ESG trends.

Entry logic: Global infrastructure acceleration → steel demand surge → rising prices + capacity utilization increase

5. LVMH: The undefeated leader in luxury consumption

Monopolizes 75 top luxury brands, including LV and Dior. The remarkable thing: Even if the economy is bad, the wealthy still buy.

Gross margin is as high as 65%, far above industry average. More critically, if China’s economy truly recovers, luxury spending among the wealthy will explode again. Founder Bernard Arnault owns over 40%, showing strong confidence in his business.

Entry logic: China’s economic recovery → rising purchasing power of high-net-worth individuals → accelerated luxury sales

6. Lennar Corporation (LEN): The pioneer of real estate recovery

The largest homebuilder in the US. Mortgage rates are expected to fall below 5.5% in 2025, a big boon for first-time homebuyers. With the average age of US homes rising and Millennials entering the home-buying phase, demand is building.

LEN’s P/E is only 10, well below industry average. Its gross margin is 21%, and it builds homes 15% faster than competitors. It also holds land reserves of 300,000 plots, all purchased during lows.

Entry logic: Rate cuts → active first-time buyers → housing starts and sales rebound

Are there other opportunities in this category?

Semiconductor ecosystem: Not just NVIDIA—ASML (chip manufacturing equipment), Qualcomm, Samsung Electronics will also benefit. The entire chip industry is expected to grow 15% in 2025.

Automobile manufacturing: Volkswagen, Hyundai, BMW, BYD, etc., are waiting for the global car replacement cycle. Industry forecasts predict an 8% increase in global vehicle sales in 2025.

Financial services groups: Besides JPM, Goldman Sachs, Bank of America, and others will also benefit from higher interest rates and more active trading during economic recovery.

What must you understand before investing in cyclical stocks?

What “temperament” do these stocks have?

1. Extremely sensitive to the economy

Cyclical stocks are the barometer of economic health. Once macro conditions change, their prices can fluctuate wildly in a short time. The same news can have opposite effects at different stages of the cycle.

2. Governed by supply-demand relationships

Prices are driven not by fundamentals but by market buying and selling forces. When demand is strong, even poor stocks can rise; when demand weakens, even good stocks can fall.

3. Volatility is normal

If you dislike daily swings of 5%, cyclical stocks aren’t suitable for you. These stocks are inherently “temperamental”—easy to rise, easy to fall.

4. Many additional risks

Policy changes, global economic shocks, supply chain disruptions, exchange rate fluctuations—any of these can change the fate of cyclical stocks.

Where are the advantages?

✅ Huge profit opportunities: During recovery, cyclical stocks often rise 3-5 times more than defensive stocks.

✅ Predictable cycles: While exact timing is hard to pinpoint, the general direction of the economic cycle can be perceived in advance.

✅ Portfolio synergy: Combining with defensive stocks can create a “both offense and defense” investment portfolio.

Where are the risks?

❌ Volatility can be brutal: High volatility means high risk; investors with poor psychological resilience can get caught.

❌ Requires professional judgment: Not everyone can accurately grasp the turning points of the economic cycle; misjudgment can be costly.

❌ Vulnerable to sudden events: Policy shifts, geopolitical conflicts, pandemic rebounds… black swan events can devastate cyclical stocks.

❌ Not suitable for long-term holding: The gains of cyclical stocks mainly come from price swings, unlike defensive stocks that rely on cash flow and dividends.

Cyclical Stocks vs. Defensive Stocks: Different Investment Approaches

To compare, you’ll understand:

Cyclical stocks are suitable for aggressive investors who understand the economy cycle, accept short-term volatility, and aim for quick profits.

Defensive stocks (like Coca-Cola, Johnson & Johnson, utilities) are for capital preservation and value growth. These companies sell essentials that people buy regardless of economic conditions—stable earnings and reliable cash flow.

When the economy is good, switch to cyclical stocks; during downturns, hide in defensive stocks. Investors who can rotate are the winners.

Final Advice

2025 will indeed be the stage for cyclical stocks, with clear expectations of global economic recovery. But the key is not which stock to buy, but understanding your position in the economic cycle.

We are early in the recovery phase, but no one can precisely predict the peak. So don’t go all-in on any single direction. Use 30-50% of your capital to participate in cyclical stocks, while keeping the rest in defensive stocks.

Remember: The best investment strategy isn’t betting on a single story but flexibly allocating across different cycles.