What are non-cyclical stocks?
Non-cyclical stocks belong to companies which produce everyday staple products, such as toiletries or utilities. Because consumers need these items everyday regardless of the business cycle, these stocks do not tend to fluctuate, meaning they stay relatively uniform in price over time. In that sense, non-cyclical stocks are less prone to volatility. That’s because if the recession takes a hit, these are the last products people are willing to eliminate from their budget if they’re strapped for cash. Non-cyclical stocks are distinguishable from cyclical stocks which belong to companies relying on the economy doing well – such as airlines or hotels.These stocks are way more turbulent because when the economy takes a hit, these stocks take a hit too.
- Non-cyclical stocks are those that stay relatively uniform, regardless of how well the economy is performing
- Everyday staple products, such as toiletries, utilities, food and pharmaceuticals are considered non-cyclical
- They are the last products people will eliminate from their budget when the company hits a recession
- Integrating a combination of cyclical and non-cyclical stocks into your portfolio is a good strategy to protect your investments from volatility
Investing in non-cyclical stocks
It’s important to note that non-cyclical stocks will underperform the market when it’s booming and outperform the market when the economy is in a recession. That’s why it’s recommended to integrate a combination of cyclical and non-cyclical stocks into your portfolio. That way, you will gain some of the upside when the economy is booming, but you will also be protected when the economy is in a recession. For example, consumer staples companies thrived during the early stages of the Covid-19 pandemic when people needed to stock up on essentials and didn’t have the freedom to dine out and leisure.
What types of stocks are non-cyclicals?
Food: People still need to eat, regardless of whether the economy is doing well or not.
Petrol: Driving is a vital mode of transport for people, even if the economy is underperforming.
Pharmaceuticals: There is a demand for pharmaceuticals regardless of whether the economy is on an upwards or downwards trend.
Utilities: People need power and heat for their homes in order to keep themselves and their families warm.
Toiletries: Toilet paper, cleaning products, toothpaste and shampoo – these are goods we need everyday!
Companies with non-cyclical stocks
Want to know what sort of companies hold non-cyclical stocks? Here’s some examples for you:
- Coca-Cola Company
If you wish to invest in non-cyclical stocks but don’t know which stock to go for, a safer option is to invest in an exchange-traded fund (ETF), such as the Vanguard Consumer Staples ETF.