Equity · Core
Cyclical Stock
A cyclical stock’s earnings move with the economic cycle — cheap at the peak and expensive at the trough if you use a spot multiple.
Definition
Autos, semiconductors, miners, chemicals, and many industrials. Peak EPS makes P/E look low; trough EPS makes it look infinite. Normalized or mid-cycle earnings are the adult multiple.
Why it matters
Cycle mistiming is how ‘cheap cyclicals’ destroy capital. Credit and inventory amplify the earnings swing.
Case
A semiconductor name at 8× peak EPS into a capex boom. Two years later EPS is down 60% and the same price is 20×. The 8× was the cycle.
How to read it
Where are we in utilization, inventory, and capex? Use mid-cycle EBIT, not last year’s print.
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