Stocks: Should You Ride the Cyclicals?

S&P's latest list turns up 34 attractive names from the energy, materials, industrials, and information technology sectors

by Beth Piskora From Standard & Poor's Equity Research

For the first time in three years, stocks in cyclical industries (i.e., those that are sensitive to business cycles and whose performance is tied to the overall economy), have a higher net margin, on average, than noncyclicals, according to Massimo Santicchia, a director of portfolio services at Standard & Poor's. (Net margins are a company's net profit divided by net revenues, often expressed as a percentage.)

While this phenomenon may indicate the top of a cycle, it may also indicate further growth for cyclical stocks. With that in mind, we screened for five-STARS stocks—those perceived by our analysts to have the highest upside potential in the next 12 months—in four sectors typically thought of as cyclical: energy, materials, industrials, and information technology.

Thirty-four stocks made the cut, and are listed in the table below. Following the table, we spotlight S&P analyst opinions on one name from each sector: