With cyclical stocks, the trick is to figure out whether the next cycle turn is going to happen earlier or later than usual. Inventories and supply and demand are important variables in analyzing the dynamics of cyclical stocks. When the P/E ratios of cyclical stocks are very low after earnings have been on the rise for many months or several years, it’s often a sign that they’re near the end of their up cycle. When P/Es are superhigh and you’ve heard nothing but doom and gloom about the company or industry for an extended period, the bottom may be near.
