NEW YORK ( MagicDiligence.com) -- There's no two ways about it: The Magic Formula® Investing strategy identifies a lot of cyclical stocks.A cyclical company is one that experiences wider-than-normal variations in its level of sales, due to the inherent boom-and-bust nature of its underlying industry and, sometimes, the overall macroeconomic conditions in the world. Usually, MFI will turn up a cyclical stock well into the boom portion of the cycle, after above-average profits have been booked but right about when investors think the boom will moderate or end, which brings the stock price down. Bingo: the magical combination of a high earnings yield and a high return on capital. One key thing to determine when analyzing a cyclical stock is the nature of its cost structure. These companies will skew in one of two directions: toward a fixed cost structure or a variable cost structure. Let's take a look at each and the advantages and disadvantages.