Defensive Investing with Non-Cyclical Stocks

By Stock Research Pro • March 5th, 2009

The investment strategy of separating cyclical from non-cyclical stocks is about determining products and services consumers want v. what they really need. Cyclical stocks are stocks of those companies that offer products and services, to consumers or businesses that they are more likely to buy when there is a high-level of confidence in the economy. These are often referred to as “luxury items”. Automobile companies provide an example of cyclical stocks. Non-cyclical stocks represent those companies that offer products or services that are needed, regardless of the state of the economy.

Non-Cyclical Stocks and Defensive Investing

Because the demand for the products of non-cyclical stocks continues, regardless of the economic climate, they tend to perform well during economic downturns. It’s also worth noting that these stocks tend to perform less well during economic upturns. Examples of non-cyclical stocks include:

Utilities: Consumers and businesses alike consistently require water, gas, and electricity. In providing a service that is consistently used, utility companies show moderate growth without dramatic fluctuations. Many investment advisors believe that the safety and income income (through dividends) these companies provide make them worth considering for any portfolio.

Healthcare: This group includes insurance companies and those companies that provide pharmaceuticals and medical devices.

Food and Beverages: Includes producers of food products and beverages. This group can also include low-end or fast food types of restaurants whose main attraction is low-price.

Other Household Non-Durables: Soap, toothpaste, and bleach are additional examples of products whose demand remain relatively consistent in any economic climate.

Non-Cyclical Stocks for Conservative Investors

For investors who are approaching retirement age or for those who simply have a low tolerance for risk, non-cyclical stocks can be a good choice given their relative stability and tendency to offer income through dividends. Of course, this relative safety can lead to missed growth opportunities during good economic times.


The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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