Last month, I (Tom Yeung) introduced eight cyclical stocks to buy immediately. These high-quality companies had winds in their sails, and all have since performed splendidly. As of writing, these companies have returned:
- CME Group Inc. (CME): 6.4%
- Cboe Global Markets Inc. (CBOE): 6.2%
- DTE Energy Co. (DTE): 7.0%
- Duke Energy Corp. (DUK): 4.9%
- Dominion Energy Inc. (D): 3.1%
- Eversource Energy (ES): 12.7%
- AbbVie Inc. (ABBV): 19.0%
- Kimberly-Clark Corp. (KMB): 9.1%
On average, these eight stocks have surged 8.6% in less than a month.
That’s more than ten times better than the S&P 500’s return, and stands in total contrast with the negative returns of the Dow Jones Industrial Average (-0.3%) and Nasdaq Composite (-0.1%).
We didn’t even have to take much “risk” to achieve these results. CME Group and CBOE have virtual monopolies in options and futures markets… Eversource is a New England power utility… and it’s hard to think of a more stereotypically dull firm than Kleenex maker Kimberly-Clark.
That’s because conservative stocks can provide magnificent returns when they have cyclical tailwinds on their side. Short-term seasonal effects are powering the four energy companies higher because natural gas prices typically rise during the cold winter months. Medium-term optimism is driving KMB’s gains. And longer-term business cycles are helping CME, CBOE, and ABBV do well.
Still, these cycles are a blink of an eye when viewed through the lens of Keith Kaplan, CEO of TradeSmith. To him, he’s looking for cycles across decades… if not longer.
These generational shifts can power stocks like Apple Inc. (AAPL) for a quarter-century, turning every $10,000 invested in 1997 into $16 million today.
That’s why I encourage you to reserve your spot for Keith’s latest presentation. During that free broadcast, next Thursday, February 27, he’ll be revealingwhat he’s calling “the pattern,” a cyclical effect that’s only happened every 49.5 years on average.
When this patten appears, Keith says, it can send a specific class of stocks soaring. In fact, back-tests show the last time this pattern appeared under these conditions, it led to historic gains over the long haul, such as 9,731% from a leading software company… and 28,894% from a computer-driven hardware firm.
For long-term investors, it’s an event you don’t want to miss.
To save a seat for that event, click here.
Meanwhile, I’d like to introduce two more cyclical stocks for shorter-term investors seeking to ride cyclical waves higher.
2 Roaring Cyclical Stocks to Buy
Like before, I apply four key criteria to find cyclical firms to buy:
- Upside. These firms must score an “A” or “B” in Louis Navellier’s Stock Grader (subscription to any Navellier service required). This proven quantitative system has long been a solid predictor of future gains, thanks to its focus on institutional fund flows, fundamental quality, and other critical factors.
- Quality. Companies must have “moats” around their businesses that protect them during low-cycle moments. Buying cyclical companies is pointless if the firms can’t survive the next inevitable downturn.
- Cyclicality. The firm’s industry must demonstrate an ability to bounce back. So, I exclude any “sunset” industries that are trending downward into oblivion.
- Timing. The company must trade within 30% of its 52-week low. This prevents us from buying shares of cyclical companies at the top of the market.
The Data Center Giant Hiding in Plain Sight
Anyone who has visited Northern Virginia will have seen its picturesque rolling hills, scenic trails, and budding winery industry.
In addition to the occasional hidden government base, this natural beauty hides another secret:
America’s largest data center network.
The region hosts more than 500 of these facilities – drawn in by Virginia’s world-class fiber optic network, affordable electricity, and proximity to other data centers. When you’re running a massive computer network, it’s best to locate your servers near others.
That’s where Digital Realty Trust Inc. (DLR) comes in. The San Francisco-based firm is the world’s largest data center and co-location provider – the service that rents data center facilities to other companies. Digital Realty’s 300 data centers span 50 cities, and it has strategically located centers in almost every major computing cluster.
That’s made Digital Realty an incredible winner in the race for AI computing power. On February 13, the company announced revenues of $1.4 billion (a solid 5% rise from the prior year) and earnings per share of $0.51, a fivefold jump.
The cycle will likely continue through 2025 as cloud computing companies struggle to construct data centers fast enough. In January, companies from Alphabet Inc. (GOOGL) to Microsoft Corp. (MSFT) reported they were turning business away from a lack of capacity.
This has triggered a surge in new leasing activity for Digital Realty, which should bring in record profits in 2025. Analysts expect adjusted EBITDA growth to accelerate to 8% this year and 11% in 2026.
Please note that the party will eventually end for Digital Realty. Many tech firms are building their own hyperscale data centers, and these facilities will compete against Digital Realty’s vast network. DLR is also not immune from the “bust” part of the boom-bust cycles of data centers, given its relatively commoditized business.
Nevertheless, Digital Realty’s double-digit selloff since November provides an opening for investors to buy into the AI Revolution for a discount. Shares likely have a 30% short-term upside from here.
Getting Back on the Menu
In 1992, the National Livestock and Meat Board launched an advertising campaign aimed at promoting beef consumption.
“Beef. It’s What’s for Dinner” was a surprising success. Over 88% of Americans now recognize the slogan, and it may have contributed to the recovery of beef consumption in the late 1990s.
Nevertheless, no advertising campaign has ever solved the cyclicality of the meat production industry. Cattle producers typically adjust their herds collectively, and the U.S. Department of Agriculture notes this creates a “cattle cycle” that lasts 8to 12 years. The graph below illustrates how regular these peaks and troughs can be.
The latest trough is now in sight. Cattle herds are expected to bottom out this year and potentially rise again in 2026. The trade publication Drovers Magazine notes that Oklahoma calf prices are up 61% since 2022, which is creating “increasingly strong market signals for cow-calf producers to expand the beef cow herd.”
That’s excellent news for Tyson Foods Inc. (TSN), North America’s largest cattle processor. The firm handles almost a quarter of beef packed in the U.S., and has divisions across Asia and Europe that do the same. A turnaround in U.S. cattle production will strongly impact the company’s bottom line since that segment is loss-making at current production volumes.
In addition, Tyson is benefiting from consistent poultry demand, because it also controls 25% of that market. That segment generated 9.1% adjusted operating margins in its most recent quarter – the highest level since 2017. Chicken feed costs have eased, and Tyson has managed the recent bird flu epidemic relatively well.
Together, analysts expect Tyson’s net income to rise at a 19% annualized rate through 2027, a bullish sign for the stock. Shares of the meat processor have typically surged during cattle upcycles (60% during 2004-’07 and 120% in 2015-’22), and this new cattle cycle promises more of the same.
The Even Greater Cycle
The downside to cyclical companies like Digital Realty and Tyson is that “what goes up must come down.” Good times eventually end, and investors have a habit of acting as if peak cycles will never return. Shares of both firms fell as much as 50% in the last market downturn and will likely do so again.
That’s why I urge you to sign up now for Keith’s special briefing on Thursday, February 27th.
During that event, he’ll demo his company’s new tech breakthrough that revealed “the pattern.”
He’ll show you the pattern in full.
Keith will even reveal the names and tickers for 10 tech stocks poised to soar as the pattern begins to play out in 2025.
Based on what happened last time, the long-term gains could get legendary.
Just go here to get your name on the list for Keith’s February 27 briefing.
I’ll see you here next week,
Regards,
Thomas Yeung
Markets Analyst, InvestorPlace