Growth, defensive, cyclical: is there a stock that fits all?

When things get turbulent on the stock markets, many investors understandably become more nervous. Should I exit and reduce my equity exposure? The reasoning is understandable, but as a rule, one important factor is ignored: stocks differ greatly from one another because the corresponding companies differ greatly. This also means that stocks do not all develop identically in different market and economic phases. So is there a share for all cases? In any case, there are suitable stocks for many different scenarios. We show what types of stocks there are and in which situation they perform particularly well or poorly.

growth stocks

For a long time, growth stocks have been everbody’s darlings on the stock exchanges. Those who haven’t invested in them have typically missed out on big gains, especially over the past few years. The major indices were also supported by only a few growth stocks, especially tech stocks. They benefited from the low key interest rates and a lot of free liquidity that was injected into the market by the central banks. With the market environment changed by the more restrictive central bank policy, many growth stocks also stopped their soaring. Suddenly, possible future profits no longer counted for investors, but the focus was on the present.

value shares

This, in turn, played into the hands of many value stocks. Companies with healthy balance sheets, which had been ignored by mainstream investors for a long time, suddenly became interesting again due to their comparatively lower valuation levels. It is hardly surprising that these less speculative stocks were able to slip into the role of favorites, especially in an overall more uncertain market environment. Value stocks can be found in many different sectors.

defensive stocks

From an investor’s point of view, companies whose business is largely independent of the economic cycle are described as defensive or anti-cyclical. Even in a cooling economic environment, these companies know how to impress with solid figures. In particular, companies from the pharmaceutical, telecommunications, electricity and water supply sectors, but also food or consumer goods of everyday use are among them. Such companies often offer higher dividend yields along with lower volatility. However, large positive price jumps are rarely observed with these shares.

Cyclical stocks

If a company, or its business model, is heavily dependent on the economic cycle, one speaks of so-called cyclicals. Earnings from these companies are particularly strong when the overall economy and consumer climate are developing positively. The share prices of cyclicals also develop with a high correlation to the economic cycle. Accordingly, cyclical stocks fluctuate more in price, but also offer higher positive price potential. Cyclical stocks include travel companies, retail, but also consumer electronics, car manufacturers and commodity producers.

What if stocks generally disappoint?

Fortunately, there are many opportunities for investors in the capital markets. For example, bonds have now become a viable option due to the rise in interest rates. “We see bonds coming onto the market that currently have interesting yields, from very established companies with excellent ratings,” explains DJE Research Head Stefan Breintner in the March market comment. Of course, bonds also harbor risks such as currency or default risks.

As you can see, the capital market offers suitable options for many scenarios. If the circumstances become too negative, increasing the cash quota in the depot is also a possible sensible step to reduce risk. At Solidvest, the active control of the cash ratio is therefore naturally part of the toolbox.