Interestingly, cyclical stocks have an inverse P/E cycle, meaning they generally have a high P/E ratio when they are poised to rally and a low P/E near the end of their cycle. This is due to the fact that Wall Street analysts try to anticipate the earnings-cycle dynamics of these companies, which are dependent on the business cycle. Growth investors may become confused when they attempt to apply an earnings model to the selection process for cyclical stocks, and their stock picks do not respond like a cookie cutter retailer or a high-growth technology company poised for many continued quarters
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