We receive requests to address various topics but due to limited resources have to focus our efforts. Recently there has been a sustained interest on how cyclical stocks differ from non cyclicals. So here we go.
Let us start with a quiz
Stock A is a cyclical stock. Would you rather buy it at peak earnings or trough earnings (maximum loss).
re: what you wanted to know about cyclic stocks but were afraid to ask
We have received interestingcresponses. No cyclical stocks are NOT related to selling cycles. Some were on the right track.
re: what you wanted to know about cyclic stocks but were afraid to ask
So let us say the p/e at peak earnings is 25 and at trough earnings is say 150 if earnings positive OR undefined if there is a loss. Intuitively which case is more appealing? Which case is likely to occur at top of a business cycle and which at the teeth of a recession?
re: what you wanted to know about cyclic stocks but were afraid to ask
We receive requests to address various topics but due to limited resources have to focus our efforts. Recently there has been a sustained interest on how cyclical stocks differ from non cyclicals. So here we go.
Let us start with a quiz Stock A is a cyclical stock. Would you rather buy it at peak earnings or trough earnings (maximum loss).
Who are we? what are you trying to say or achieve?
re: what you wanted to know about cyclic stocks but were afraid to ask
Who are we? what are you trying to say or achieve?
We is a figure of speech. It is a light hearted way of communicating. It looks like this is not acceptable - no problems.
As to what I am trying to achieve - I am trying to share my perspective on cyclical stocks and their subtleties. I welcome you to participate and contribute. I also welcome you to review my threadsxand providecfedback on the relevance of those threads to the small investor.
Anyway for those who are puzzled by use of terms such as we our staff etc - there is no staff. All the threads I have opened are my contributions. Sincere apologies if this caused any confusion.
I have tried to make this thread interactive. What I am trying to achieve is to show terms such as p/e may be misleading for cyclical stocks.
In any event - based on this response- I will no longer be opening new threads or adding to old threads in business section - it looks like this approach may not meet approval of managent.
It was fun for me while it lasted I hope it was useful to some.
re: what you wanted to know about cyclic stocks but were afraid to ask
I am going to proceed as if above exchange did not happen and move forward. Posting about investment is what I love to do. And exchanging ideas is also mypassion. I believe I have provided the necessary clarification. Time to turn the page and co tinue posting unless I am told otherwise.
re: what you wanted to know about cyclic stocks but were afraid to ask
I don’t understand 
how come there will be loss if there is no sales?
re: what you wanted to know about cyclic stocks but were afraid to ask
A company sells products. If businessxwell managed it makes profit. But if costs exceed revenue there is loss.
re: what you wanted to know about cyclic stocks but were afraid to ask
NNow let us look at Applied materials (amat)
Year. eps. Price. P/e
2002 and 2009 were at teeth of recession. Earnings plummetted and even went negative (loss) in 2009.
The p/e ratio skyrocketted because denominator close to 0.
That would have been Greg time to buy.
2007 p/e 18.6 but earnings was at peak. So price was high. Bad time to buy.
Ditto 2009 and 2011.
Counter intuitive
re: what you wanted to know about cyclic stocks but were afraid to ask
Of course p/e is just one metric. Cbalance sheet has to be solid - at the bottom of a cycle when things look the darkest there should exist potential to turn things around. Make sure company does not waste precious cash buying back stocks at high prices. Watch out for stock options which are sometimes not accounted for as expense thus inflating earnings.
Goal here is not to entice anyone to buycstocks - but to point out hoe p/e is meaningful only when consideration given to if e is peak or trough earnings. Bas
re: what you wanted to know about cyclic stocks but were afraid to ask
I am going to proceed as if above exchange did not happen and move forward. Posting about investment is what I love to do. And exchanging ideas is also mypassion. I believe I have provided the necessary clarification. Time to turn the page and co tinue posting unless I am told otherwise.
I think you took offence to my question for which I apologise. I wasn't trying to discourage or stop you from posting. When you mentioned we I thought you were working for some investment company or brokerage and was posting some research from them. That is why I was interested. As for the content in your posts I was finding it difficult to understand hence my curiosity.
Re: what you wanted to know about cyclic stocks but were afraid to ask
^ not your fault. I jumped to the wrong conclusion. Hence I owe you an apology.
Re: what you wanted to know about cyclic stocks but were afraid to ask
Let us look at Texas instruments txn
Year. Eps. Price. P/e
2000. 1.23. 72. 58.5
2003. 0.1. 15. 150
2007. 1.7. 37. 21.7
2009. 0.85. 15. 17.6
2011. 2.6. 35. 13.5
Let us look at 2000 vs. 2003
The 2000 p/e 58.5 and 2003 p/ e 150. So one may think 2000 is cheaper. Opposite truem 2000 earnings at that time was peak earnings. In 2002-2003 earnings fell like ton of bricks. So ptoe of 150 while appearing expensive should not have been used as criterion. Because e was so small - denominator.
One more thing - the 2000 p/e was off peak earnings. AND IT WAS WAYYYY HIGH AT 58.5. THIS SHOULD HAVE BEEN A HUGE RED FLAG.
Re: what you wanted to know about cyclic stocks but were afraid to ask
Now let us look at 2007-2011. In 2007 e was also at peak. P/e while appearing reasonable did not tell whole story. Because e was slated to fall. Nevertheless ptoe of 21 wad nowhere near nosebleed ptoe of 58.5 in 2000. So situation wad not as drastically overvalued as in 2000.
Fast forward to 2009. Earnings wad at trough at 0.85. P/e was 17.6 off trough earnings. Not bad.
Sure enough stock doubled by 2011.
In 2011earnings were at peak of 2.6 while ptoe was a misleadingly low and reasonable level of 13.4. Sure enough the stock is at 27.7"- a significant drop.
IMO knowing one sector is more cyclical than average can help staying away from stocks when they are at peak earnings. And can help not being unreasonably fearful at trough earnings when p/e can be very high or even infinity.
As always Mr. Market knows best.
Re: what you wanted to know about cyclic stocks but were afraid to ask
what about returns of goods? Is that also counted in loss?
Re: what you wanted to know about cyclic stocks but were afraid to ask
Good question. It is my understanding goods are returned fqor various reasons. If goods damaged the store say Target can get reimbursed from the supplier of said product. If returned for no reason Target can still sell it. Of course processing costs increase. Revenue - cost = profit. So yes profit negatively impacted.
Each store has own return policy
Re: what you wanted to know about cyclic stocks but were afraid to ask
Nowadays goods are available on credit. You can keep the profilt made out of these goods by selling. If not than you can return it to without any extra payment/charges.
In that case there is Zero chances of loss and if there is anything that is only profit.
Re: what you wanted to know about cyclic stocks but were afraid to ask
Wow! Makes sense. Thanks Lethal.
Re: what you wanted to know about cyclic stocks but were afraid to ask
I liked ur threads. Keep open such thread and i’ll participate but plz use easy words if possible. 
Re: what you wanted to know about cyclic stocks but were afraid to ask
Sorry Lethal. I am no English scholar. (But I know you are very zabardast in Urdu). I will keep the language simple.