In last week’s Sunday Digest, I (Tom Yeung) wrote how cyclical companies are often incredible investments. Firms like copper miner Freeport–McMoRan Inc. (FCX) usually trade in a predetermined range (much like high and low tides at a beach), and so investors simply need to learn that range and the pattern the stock follows, and then buy low and sell high.
InvestorPlace Senior Analyst Eric Fry – our global macro expert – did just that in 2022 with FCX stock. As a reminder, Eric is one of the most successful analysts in the newsletter industry. While most investors are lucky to find one or two 1,000%+ recommendations over the course of their career, Eric has found 42.
Back to that FCX trade… Eric waited until shares had dropped from $50 to $30 on macroeconomic concerns… and then established a large position in his Leverage trading service before the stock rose 67% back to $50. He sold his position in chunks near the top for an average of 119% gains. (We’ll talk more later on how he did that.)
These high-quality picks exist in other industries as well. Last week, I introduced two trading exchanges and three power-producing firms to buy. These cyclical firms are also quasi-monopolies. Even if there’s a down-cycle, they’re almost certain to weather the storm. The CME Group Inc (CME), after all, has exclusive licenses to issue futures contracts on the S&P 500, Russell 2000, and Nasdaq indexes.
This week, I’m pleased to add three more cyclical companies to that list.
I’ll also reveal how Eric turned Freeport’s 67% rise in the chart above into those 119% gains… and did so with far less risk than you might think, thanks to his use of long-term options. Eric just put together a free research video that dives into more details on the strategy. It provides a more detailed analysis of how these so-called LEAPS trades can transform your portfolio returns… and you can check it out here.
I’ll have some more thoughts on Eric’s strategy myself below, but first…
Let’s take a look at three more high-quality cyclical firms to buy to ride this new bull market.
Winding Back Up
In 2022, shares of Boston-based electrical utility Eversource (ES) began a long 40% slide after the company abandoned its offshore wind projects.
The company was one of the first in America to pursue offshore wind power, making it also one of the first to fail at the endeavor. The company took almost $2 billion in impairment charges in 2023 and recognized an additional $464 million of losses in third-quarter 2024 year after failing to sell its remaining wind assets for an expected $1.12 billion. (The firm received just $745 million.)
The picture is changing now that Eversource’s wind bet is in the rearview mirror. For 2025, analysts expect revenue growth to flip back positive to 4%, up from a -3% decline last year. Cash flows are set to surge 75%.
The Stargate Project announcement is another catalyst for a new up-cycle for Eversource. On Tuesday, President Trump revealed a joint venture between Oracle Corp. (ORCL), OpenAI and SoftBank Group Corp. (SFTBY) to raise $500 billion in order to build American AI infrastructure. The president billed it as “the largest AI infrastructure project by far in history.”
“We have to get this stuff built,” Trump said in the press briefing. “They have to produce a lot of electricity, and we’ll make it possible for them to get that production done very easily.”
That’s good news for Eversource, which generates 40% of consolidated earnings from interstate transmissions – an increasingly important component for stabilizing the power grid in the face of AI data center power demands.
This marks a turn of events. In 2014, the Federal Energy Regulatory Commission (FERC) cut Eversource’s allowed return on equity to 10.57% from 11.14%, digging into one of Eversource’s main sources of profits. Under the Biden administration, the utility continued to face pending FERC rate challenges, keeping share prices depressed.
The Trump administration will change that calculus. The five FERC commissioners are appointed by the president on a one-year rolling basis, so the committee will flip back to a 3-2 Trump-appointed majority by July 2027. And if America is serious about developing the largest AI infrastructure project in history, it will need to allow higher returns to spur firms like Eversource to invest.
That could send shares of Eversource back to the $80 to $90 range, a 55% upside.
Two New Tailwinds
Pharmaceutical companies can be notoriously cyclical because of patent cliffs – the 20-year limit on how long new drugs are protected from copycats. Once patents expire, competitors are free to create generic versions of drugs, pushing prices down by 80% to 85% and depressing the earnings of the original patent-holder.
Other times, pharma firms are cyclical because of changes in drug pricing regulations. In 2014, the Affordable Care Act led to a broad contraction in the industry. Pharma stocks, as measured by the VanEck Pharmaceutical ETF (PPH), fell more than 20% over the following two years. Similar concerns over Biden-era drug price cuts have pushed the index down 13% since August.
AbbVie Inc. (ABBV) finds itself stuck with both issues.
- Patent Cliffs. AbbVie’s blockbuster arthritis drug Humira went off patent in late-2023, opening the doors to cheaper generics. Sales plummeted 42% in its most recent quarter, and are expected to keep falling by double digits in 2025.
- Regulation. The company was a target of President Biden’s signature Inflation Reduction Act, which allowed Medicare to negotiate prices of the costliest drugs. AbbVie’s cancer drug Imbruvica saw a 38% price cut.
However, we’re seeing a turnaround happen before our eyes.
On the patent front, two of AbbVie’s recent drug launches, Skyrizi and Rinvoq, have shown even greater efficacy than its legacy blockbuster. Analysts expect combined sales of the two newer therapies to reach Humira’s peak 2022 sales this year.
Meanwhile, the regulatory landscape is also turning positive, at least for pharmaceutical developers. (The picture is more mixed in vaccines.) On Monday, Donald Trump signed an executive order that pared back Biden-era initiatives aimed at reducing prescription drug costs for Medicare and Medicaid recipients. More rollbacks, including Medicare’s ability to negotiate drug prices, could be on the way if Trump seeks to overhaul healthcare rules.
For better or worse, that puts AbbVie’s shares in a position for a swift reversal. Shares of this firm trade within 10% of their 52-week low, and two new tailwinds suggest roughly 20% upside from current prices over the next 12 months, and 40% upside over three years.
The Safe Bet
Finally, some businesses are so stable that shifts in market moods can show up as cyclicality.
Perhaps the best example of this is Kimberly–Clark Corp. (KMB), the maker of tissue paper, Huggies diapers, and more. Since 2015, the Irving, Texas-based company has generated a consistent stream of profits thanks to its strong brand recognition, global scale, and wide distribution network.
The stock, however, traded as low as $100 during the 2018 bear market, and as high as $160 during the height of the Covid-19 scare when germ-reducing goods from paper towels to hand sanitizer was flying off shelves. (Kimberly-Clark produces both.) Shares continue to gyrate between $120 and $145, depending on market moods.
This offers an opportunity for investors to pick up some small profits along the way. Shares of the consumer product giant currently trade for $127 from broader concerns over a “tepid economic environment and elevated cost pressures,” as Morningstar analysts put it. Here’s more:
In this context, management has been forthright that its market share has lagged, and consumers are increasingly trading down to lower-priced options in select categories to preserve cash.
Shares now trade at 17.2 times forward earnings, a 10% discount compared to its five-year average of 19.0.
That gives Kimberly-Clark room for upside. The same analysts note this drawdown is likely temporary and that gross profits are expected to rise 4% this year.
That should translate into an 11.8% increase in earnings per share, and roughly 15% share-price upside, given the faster growth.
Turning Small Gains into Large Ones
Some readers will see the 15% upside in Kimberly’s shares and say, “Yes, please.” Corporate bonds are only returning 5% annually, and KMB’s upside represents three years of potential returns.
Others will consider a 15% upside a rounding error. After all, firms like Eversource and AbbVie offer far greater potential. And high-growth startups can offer 1,000% upside or more.
That’s why my colleague Eric’s got a different strategy to make even more money on stocks on the verge of the breakout (especially if they’re out of favor).
He uses this strategy to turn small moves in stocks over a year or two into huge gains.
For example…
- The gold ETF GLD recommended by Eric went up 9%… but by using this strategy, his members saw their stake in GLD go up 117%.
- Shares of the bond ETF TLT ETF rose 18%, but Eric’s play went up 107%.
- And his recommendation of Vipshop Holdings Ltd. (VIPS) went up 22% for the stock… but Eric’s strategy soared 252%!
That’s why you should consider the power of Eric’s LEAPS strategy applied to some of these – and other – cyclical stocks… during their up-cycles.
The stocks I just shared all have double-digit potential in the near future. But with a LEAPS position… bought at today’s prices… with the economic benefit of leverage that long-term options give you… triple-digit returns are definitely in play.
And quadruple-digit returns like Eric saw from FCX are possible.
For a deeper dive into how Eric’s strategy works, here’s that link again to check out his latest free research video.
I’ll see you back here next Sunday.
Regards,
Thomas Yeung
Markets Analyst, InvestorPlace