Defensive or Cyclical?

CFA Level II
#1

I know the difference between the two, but still couldn’t know for sure which was the correct answer… The question stated that Earnings had been steady and dull for 10 years (or words to that effect), and that raw material prices decreased during a recession - i.e. offsetting lower revenues… so I went with Defensive. But equally, the analyst though profitability would decline in the event of a recession, which could mean Cyclical. Anybody have a firm view on what the correct answer was??

#2

It’s cyclical for sure

#3

I went with cyclical as well.

#4

cyclical for sure

#5

I had the same problem, had to go with defensive with the fact that it was steady for 10 years. Usually a full cycle fits within 10 years right? And also, profitablity for a defensive company will still drop in a recession (slowdown in business activity will lead to marginally less usage of the defensive company’s products) and its profitability will rise in an upswing as with most companies. It was definitely a mean question. I had cyclical down 3 times and kept erasing it for defensive, then I ended up going with defensive on the thought that EVERY question in the book had the answer as cyclical, so I hoped they were going for a trick question to get everyone to naturally pick cyclical.

#6

Cyclical

#7

Cyclical 100%

#8

Cyclical; it rolls with the economy. And industrial companies are always cyclical.

#9

@Matt… Is it mentioned somewhere in the notes that a Full cycle fits 10 yrs…if yes then i have second thoughts on my cyclical answer :frowning:

#10

yeah i know, something in the back of my head, a brain maybe, kept whispering (utilities…defensive…utilities… but i didn’t understand). there is actually a chance that i switched it back to cyclical and left it like that, i can’t remember how many times a went from c to d and from d to c.

#11

I’m trying to remember… was mature part of the question?

#12

It was cyclical. On the second page of the vignette, they mentioned that one of the risks the company faces was that something would happen to the economy, which would lead to lesser demand for its products and hence poor performance. If it goes up and down with the business cycles, it’s cyclical. If it has no correlation with the cycles, it’s defensive.

#13

can someone summerize the all the Qs and answers to that porter question.

#14

cyclical la… they have an extra paragraph just to describe about it…

#15

cyclicalc

#16

Yo monki, you from SG? The “la” gives you away…