3 Compelling Cyclical Stocks to Buy Now

Cyclical Stocks Could Be in for a Strong Year Ahead

The economy moves in waves, and it’s always important for investors to recognize its current stage of the business cycle in order to make smarter strategic moves. Periods of expansion, contraction, troughs, peaks, and recovery all have different implications for financial markets, which can each lead to different opportunities in specific stocks. Heading into the new year, many analysts consider the economy to be in a period of expansion, given the economic reopening, improving unemployment rates, and strong corporate profits. This bodes well for cyclical stocks, which tend to perform quite well in this stage of the business cycle.

If you have a positive view of the economy and believe the worst impacts of the pandemic are behind us, adding shares of the most intriguing cyclical stocks could be a marvelous move heading into 2022.

That’s why we’ve put together a list of 3 compelling cyclical stocks to buy now. Let’s take a further look below.

Alcoa Corporation (NYSE: AA)

Cyclical commodity stocks like Alcoa Corporation have been strong performers in 2021 and could continue to rally next year considering how important aluminum is for the overall economy. Keep in mind that the company is seeing strong demand from all of its major end markets, which has led to strong earnings over the last few quarters. Recently, Alcoa reported Q3 revenue of $3.1 billion, up 10% sequentially, and set a record for quarterly net income of $337 million. These are the type of results that long-term investors love to see, and Alcoa’s management expects more of the same in Q4.

It’s also worth mentioning that Alcoa recently declared a quarterly dividend of $0.10 per share along with initiating a $500 million share buyback program, which are additional reasons to consider adding shares ahead of 2022. Finally, the fact that even after the stock's strong year, Alcoa is still trading at an attractive forward P/E ratio of 9.72 makes it a very compelling cyclical name to consider at this time.

Caterpillar Inc (NYSE: CAT)

Another appealing cyclical name to consider at this time is this global leader in construction equipment, Caterpillar. The stock has been an underperformer for several months now, but investors shouldn’t write off the heavy equipment manufacturer’s upside in 2022. Caterpillar could benefit from an increase in construction activity next year thanks to the infrastructure bill, and a continued recovery in oil prices could lead the company towards selling more engine and pump products to its oil and gas exploration customers.

Caterpillar also has a rock-solid balance sheet that helped the company become a dividend aristocrat. Most recently, the company boosted its dividend payout by 8%, which should be a signal to investors that management is comfortable with the company’s financial position heading into the new year. Finally, the fact that Caterpillar reported Q3 adjusted EPS of $2.66, up 175% year-over-year, is an indication that the company is seeing a recovery in areas of the business that were hit by the pandemic and that cost-cutting measures are already paying off in a big way.

JP Morgan Chase (NYSE: JPM)

Bank stocks like JP Morgan Chase are known to be cyclical since their profits tend to take a hit during recessions. On the flip side, a strong economy with lots of consumer spending tends to be a good thing for banks. Keep in mind that the Federal Reserve has alluded to at least three interest rate hikes in 2022, which is another reason to consider adding shares of JP Morgan at this time. According to MarketBeat’s consensus analyst price targets, the stock has an average price target of $173.72, implying over 9% of upside from current levels. It wouldn’t be surprising to see the financial stocks start the year strong, and with JP Morgan trading right at its 200-day moving average, investors have a logical entry point to consider for long-term buys.

As one of the world’s largest diversified banking companies, JP Morgan engages in investment banking, financial services, and asset management. It’s a quality name in the financial sector that investors can be comfortable in owning for the long term, especially with government stimulus measures expiring and a continued economic recovery on the horizon. With a dividend yield of 2.52% and a forward P/E of 10.58, this is a high-quality name that could be a bargain at current levels.