65-Day Academy · Day 42 · Macro & Context
Defensive vs Cyclical — Reading a Company's Cycle DNA
The classification
Cyclical: demand swings with the economy — autos, housing, semiconductors, advertising, luxury. Defensive: demand is stable — staples, utilities, healthcare, insurance. The tell is in the HISTORY: plot revenue through 2008-09 and 2020 — did it dip 30% (cyclical) or 3% (defensive)? One recession is worth more analysis than any sector label.
The valuation consequence
Cyclicals deserve LOW P/Es at peak earnings (the multiple is inversely cycle-timed — day 16) and can be bargains at trough losses. Defensives trade at premium multiples because their earnings are trustworthy. Mixing the frames — paying defensive multiples for cyclical earnings — is how "quality" portfolios buy the cycle top.
What you'll practise
True or false: a cyclical stock at 6× P/E near peak industry earnings is usually a bargain.
10 XP in the app · introductory
Sources
- Cyclical vs Defensive StocksInvestopedia
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All lessons are for educational purposes only and are not individualized financial advice, a recommendation, or a solicitation to buy or sell any security. Options involve substantial risk and are not suitable for every investor.