5 Best Cyclical Stocks to Buy in November 2021

Cyclical stocks have come off their 2021 highs. However, we could see a year-end rally in these names as President Biden’s infrastructure plans finally see the light of the day.

Cyclical stocks are high beta names and are more volatile than the broader markets. Also, these stocks rise sharply in a cyclical uptrend but slump during a cyclical downturn. The near-term outlook for cyclical stocks looks positive and we could see a Santa Claus rally. Here are the five best cyclical stocks that you should consider in November 2021.

1. Cleveland-Cliffs (NYSE: CLF)

Cleveland-Cliffs’ stock is up almost 54% for the year even as it has come down from the highs. CLF is an integrated steel producer having both iron ore and steel operations. The outlook for US steel stocks looks positive as the outlay towards physical infrastructure would boost US steel demand. The company sells a large part of its steel to automotive customers and would benefit from higher contract prices in 2022. Automotive companies buy steel on contract and these are generally renewed yearly.

Commenting on the contracts, CLF CEO Lourenco Gonsalves said that the company has successfully concluded several contracts. He added, “Differently from other steel companies more exposed to spot prices, we believe that our average sales price next year should be higher than in 2021, allowing us to continue to grow our already strong profitability and to further strengthen our balance sheet.”

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CLF is among the best cyclical stocks

Last month, CLF released its third-quarter earnings and reported record revenues of $6 billion in the quarter. Its adjusted EBITDA and net income were also a new record and came in at $1.9 billion and $1.3 billion respectively. The company has been using the cash to delever the balance sheet. It has redeemed its preferred shares which account for almost 10% of its outstanding share count. CLF has forecast that by the end of 2021, its net debt would be below the LTM (last-12 months) EBITDA which is quite a low leverage multiple even for a cyclical stock like CLF.

The company has also agreed to acquire Ferrous Processing and Trading Company which is a leading prime scrap processor in the United States.  CLF stock trades at an NTM (next-12 months) EV-to-EBITDA multiple of around 2.6x which looks like a reasonable entry point.

CLF has also been a popular cyclical stock on WallStreetBets. It has come off its highs and the correction looks like a good opportunity to buy the stock.

2. U.S. Steel Corporation (NYSE: X)

U.S. Steel Corporation is another cyclical stock that would benefit from the infrastructure investments. X, like CLF, is an integrated steel company. Also, both CLF and X reported earnings beat in the third quarter. From a valuation perspective, X looks quite cheap with an NTM EV-to-sales multiple of just under 1.5x. The company is transforming its business and pivoting from traditional blast furnaces to new-age mini-mills. These investments would help support the company’s earnings in a structural way and also lead to a rerating of the stock.

X is among the cheapest cyclical stock

X is among the cheapest cyclical stocks. It looks like a good buy considering the possibility of a year-end rally in markets. While X has come off its 2021 highs, it could recoup the recent losses. Wall Street analysts have been getting bearish on X stock but it nonetheless looks among the best cyclical stocks to buy as the undercurrents in the US steel markets look quite strong.

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3. General Motors (NYSE: GM)

The automotive industry is also cyclical in nature. The industry is currently grappling with the chip shortage situation which has taken a toll on the earnings. However, the situation is easing and should get a lot better by the next year. The forecast for General Motors stock looks positive as it pivots towards electric cars. The investments that the company is making into electric and autonomous driving would drive long-term shareholder value.

GM is a good cyclical stock to play the automotive industry

While GM stock has seen a valuation multiple rerating over the last year, its electric and autonomous driving initiatives are still not fully appreciated by the markets. Engine No. 1 founder Chris James whose firm took a stake in GM, is quite bullish on General Motors stock and sees it as a multibagger. “We think that this can become a growth company again. … We think this stock could triple over the next five years.”

General Motors looks like a good cyclical stock to buy at these prices and play the company’s pivot towards electric cars. With a lot of pure-play EV stocks looking bloated, legacy automakers like GM look like good bets.

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4. Freeport-McMoRan (NYSE: FCX)

Talking about cyclical stocks, it is hard to miss copper miners. Goldman Sachs which correctly predicted prices hitting $10,000 per metric ton now sees copper prices hitting $15,000 per metric ton. Bank of America is also very bullish on copper and cites the current supply deficit and low inventories to support its bullish thesis. Within the copper space, FCX is among the best cyclical stocks to buy.

FCX is a good cyclical stock to play the economic recovery

Copper stocks are cyclical in nature. Also, copper is a play on the electric vehicle transformation given the high intensity of copper in electric and hybrid cars. If you are looking to play the EV transition, FCX looks among the best ancillary stocks.

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5. Boeing (NYSE: BA)

The aviation industry is also cyclical in nature. Apart from airline companies, you can also play the industry through Boeing stock. Last month, Goldman Sachs had also reiterated its buy rating on BA stock. “We think there is a relatively high probability that in the next few months Boeing sees: (1) FAA approval to resume 787 deliveries, (2) China 737 MAX regulatory approval, (3) an international and business travel acceleration. These catalysts should allow the market to look out to normalized earnings and cash flow power, and remove overhangs that investors regularly tell us they need out of the way before they will buy the stock,” it said in its note.

Boeing is a good cyclical stock to play the reopening

The positive news over Merck’s COVID-19 vaccine medicine and the Pfizer antiviral pill are positive for cyclical reopening stocks like Boeing. The company seems to have put the worst behind and now look a good cyclical stock to buy and bet on a revival in the global aviation industry.

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