This article originally appeared Sept. 6, 2013, on Real Money. To read more content like this, + see inside Jim Cramer's multi-million dollar portfolio for FREE Click Here NOW.
I have found that as an investor I have to watch the allocation to cyclical stocks within my portfolio much closer than those portions I put in income stocks or steady growth plays.
Earnings in cyclicals can swing wildly, depending on economic growth, changes in demand within a particular sector or company specific events. Sentiment on cyclical sectors can also change rapidly, which makes these stocks high beta plays. The upside is these types of stocks can rise quickly on any improvement within any of these areas. This week a couple of my cyclical plays picked up some positive catalysts.
is a leading manufacturer of quality-engineered wood. It is the market leader in producing oriented strand board that has been replacing plywood for use in housing construction. It is one of my plays on the housing market, which is continuing to recover.
The company announced on Thursday that it is acquiring Canadian-based
for $1.1 billion. This transaction has several positives. It was done at a fair price, it gains LPX exposure to Asia and it also should trim the extreme volatility within the pricing for OSB products. The stock shot up better than 10% Thursday as investors applauded the acquisition.
DA Davidson upgraded the stock from "neutral" to a "buy", saying that this acquisition will immediately be accretive to earnings. I would expect other analysts to follow suit. Revenues were tracking for better than 20% growth this year prior to the acquisition. Earnings look like they will more than triple this year over FY2012 and this stock should do well as long as the housing market continues to improve.
is a giant copper and gold miner that has had a rough go of it over the last year, like most players in the sector. However, the company's prospects seem to be improving. First, the stock looks like it has put in a bottom just below $28 a share recently.
More importantly, the company is finally reopening its giant copper mine in Indonesia after it was closed for nearly four months. Chinese economic growth also looks like it is doing better recently which should lift all major miners. Finally, gold prices have bounced off their recent low of about $1200 an ounce, and that should be beneficial as well.
Insiders seem to be positive about Freeport's long term prospects, given they have purchased more than 1 million shares recently. The stock is selling for less than 10x next year's consensus earnings per share and it pays better than a 4% yield.
I like the positives that have accrued recently on these two cyclical stocks and will be watching closely to see if both companies can capitalize on these favorable factors.
At the time of publication, Jensen was long LPX and FCX.