Cyclical and Non-Cyclical Stocks

The idea behind cyclical and non-cyclical stocks is simple. When money is tight, what can you do without or put off, and what do you really need? You may want a new car, but if your budget is very tight, it may have to wait. However, toothpastes, toilet paper, and electricity can’t wait.

Cyclical Stocks
Cyclical stocks represent those items and services for consumers and businesses that they buy when confidence in the economy is high. Cyclical stocks follow an upward turn in the business cycle when businesses and consumers are spending money.

Cyclical stocks follow an upward turn in the business cycle when businesses and consumers are spending money.
Automobile companies are classic cyclical stocks. When the economy is good and people are working, car sales do well. However, if there are layoffs and uncertainty or high interest rates, people may decide to hold on to their car another year.

Businesses expand during good times. They buy new equipment and build new facilities, so equipment sales and construction are cyclical stocks.

When the economy cools, businesses run down inventory, put off expansions, and delay purchases. Cyclical stocks such as steel manufacturing and sales suffer when business slows down. Some of the very good examples of cyclical industries are automobile, heavy machinery, steel, furniture, airlines, etc.

Non-Cyclical Stocks
Non-cyclical stocks represent those items and services for consumers and businesses that they can’t put off no matter what the state of the economy. The stocks of companies producing these things are non-cyclical and are "defended" against the effects of economic downturn, providing great places to invest when the economic outlook is sour.

Two of the sectors, Consumer Staples and Utilities, are non-cyclical stocks and the rest are cyclical.

The classic example of non-cyclical stocks is utilities. Everyone from consumers to businesses needs water, gas, and electricity. When the economy is growing, these stocks tend to lag behind, however during economic downturns; their steady returns may look good.

Another classic example of non-cyclical stocks is household non-durable goods, such as toothpaste, toilet paper, cleaning materials.

Sources:
http://www.investopedia.com/articles/00/082800.asp
http://stocks.about.com/od/understandingstocks/a/CNCstocks.htm
http://ezinearticles.com/?What-Are-Cyclical-Stocks&id=396093