What does it mean if a stock is cyclical or non cyclical?

[plaguedbyfoibles]

If a stock is cyclical, does this mean the following:

1. They are more likely to invest in their operations / new operations during boom years rather than bust years?
2. They are more likely to implement layoffs and cut dividends during bust cycles than boom cycles
3. If they are selling direct to the consumer, i.e. B2C vs B2B, they might sometimes be taking advantage of discretionary vs essential spending from the consumer, and so are more likely to experience greater profits in boom than bust cycles

How can you tell if an industry that doesn't necessarily engage in the B2C space is cyclical or not?

[Urbandreamer]

Well.....

Supermarkets are non cyclical. Everyone needs to eat.
House builders are cyclical. They need people to be able to afford houses. Hence their profits are dependent upon interest rates and the economy in general.

In boom years cyclical business have money and can invest. In bust years they struggle to pay their workers and have to lay people off.

B2B can be cyclical or non cyclical. Selling paperclips and other office supplies tended to be non cyclical, the problem was that technology and working practices changed. Businesses that supply house builders with brick and timber will be cyclical.

Investors can make money investing in either types of business. The non cyclical ones provide more stable income, the cyclical ones reward the investors for the lack of certainty.

At the end of the day an investor needs to think about what they want from a business. It's not about what's "better", but what's better for me.

[vand]

Cycliality generally refers to how prone a business is to either a natural boom bust cycle, and/or to the overall business cycle.

To an extent, there aren't many industries that don't fall into this definition to some extent.

Industries linked to commodities tend to be highly cyclical as the nature of commodity markets swing from oversupply to undersupply based on recent crop yields. But there are peculiarities of many industries that lend themselves to this behaviour too - housebuilders & insurers are affected by the interest rate cycle quite heavily, for example.

At the other end you have tech, healthcare & consumer staples which would be considered non-cyclical.

[gryffron]

Cyclical refers to how flexible the DEMAND is for their output with changes in the economy. Nothing else.

Cyclical = Flexible demand. During a downturn lower demand for foreign travel, new cars, moving house etc.
Non cyclical = Inflexible demand. No (or very little) change in demand for food, healthcare, insurance. And interestingly, children's toys, which tend to be one of the very last things people cut back on.
A few items are Counter-cyclical. They grow in a recession. e.g. Discount stores and UK domestic holidays.

This can feed back all the way up the supply chain, so it isn't directly related to consumers/B2C. Less holidays = less flights = less demand for aviation fuel. etc. Usually, it feeds all the way back to commodity prices hence miners, oil companies etc.

Gryff