The economy fluctuates in cycles, and it's critical for investors to identify the current stage of the business cycle in order to make more sound strategic decisions. Cycles of expansion, contraction, troughs, highs, and recovery all have separate impacts on financial markets that may provide investors with unique possibilities in certain stocks. Many experts believe the economy is in a period of expansion as we reach into the new year, with the economic reopening, improving unemployment rates, and robust corporate profits. This is excellent news for cyclical stocks, which tend to do well during this stage of the cycle.
If you have a good perspective of the economy and believe that the pandemic's worst effects are behind us, buying into some of the most intriguing cyclical stocks could be a smart decision in the early months of 2022.
Here's list of 3 compelling cyclical stocks you should consider buying now.
Alcoa Corporation (NYSE: AA)
Alcoa Corporation and similar cyclical commodity stocks have done well in 2021, and they could continue to climb next year because aluminum is so crucial to the economy. Keep in mind that the firm is experiencing significant demand from all of its key end markets, which has resulted in solid earnings over the last several quarters. Alcoa stock just had a record-breaking quarter, with third-quarter revenue of $3.1 billion, up 10% year over year, and a quarterly net income of $337 million, which was its highest ever. These are the sort of results that long-term investors like to see, and Alcoa stock's management is expecting similar in Q4.
It's also worth noting that Alcoa stock declared a quarterly dividend of $0.10 per share this week, as well as beginning a $500 million stock buyback plan, which are additional reasons to purchase shares in early 2022. Finally, the fact that Alcoa stock is currently trading at a reasonable forward P/E of 9.72 makes it a very compelling cyclical stock to look into right now.
Caterpillar Inc (NYSE: CAT)
Caterpillar, one of the world's largest construction equipment manufacturers, is another appealing cyclical name to consider right now. The stock has been a loser for some time, but investors should not underestimate Caterpillar stock's potential in 2022. Due to the infrastructure bill, Caterpillar stock could benefit from an increase in construction activity next year, and a continued recovery in oil prices might lead the firm toward offering more engine and pump products to its oil and gas exploration clients.
Caterpillar stock has a rock-solid balance sheet that helped the business attain dividend aristocracy. The firm increased its payout by 8% recently, which should serve as a signal to investors that management is confident with the company's financial situation heading into the new year.Finally, Caterpillar's Q3 adjusted EPS of $2.66, up 175% year-over-year, is a sign that the company is seeing a resurgence in areas of the business that were impacted by the pandemic, and that cost cutting efforts are already producing results.
JP Morgan Chase (NYSE: JPM)
Cyclical stocks such as J.P. Morgan Chase stock are recognized for their cyclical nature, since their earnings are typically depressed during recessions. On the other hand, a robust economy with increased consumer spending is beneficial to banks. Keep in mind that the Federal Reserve has hinted at at least three interest rate hikes in 2022, adding to the incentive to add shares of JP Morgan stock. The stock has an average price target of $173.72, implying a potential gain of over 9% from current levels. With JP Morgan stock trading just above its 200-day moving average, investors have a reasonable entry point for long-term purchases.
JP Morgan is a diversified financial services and asset management firm that engages in investment banking and financial services.The name is strong and well-known in the financial industry, and investors may feel secure in holding it 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 percent and a forward P/E of 10.58, this is a high-quality name that may be had at a cheap price right now.