The Setting

This chapter looks at two groups of companies. The first group is cyclical companies—those whose fortunes rest in large part on how the economy is doing. The second group is commodity companies. They derive their earnings from producing commodities that may become inputs to other companies in the economy (oil, iron ore) or be desired as investments in their own right (gold, platinum, diamonds).

Cyclical Companies

We usually define cyclical firms in relation to the overall economy. Firms that move up and down with the economy are considered cyclical companies. There are two ways to identify these firms:

  • We can categorize industry sectors into cyclical and noncyclical, based on historical performance, and assume that all firms in ...

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