Growth stocks: accelerating sales/ margins in all phases (biotech). Defensive stocks: stable performance in any cycle; demand independent of cycle (food, beverage, utility). Cyclical stocks vary directly w/ business cycle because demand follows cycle (automobile, equipment). If this were actually true, why does anyone buy anything besides growth stocks? In the current recession, peoples’ advice is to go to defensive stocks–if the above were true wouldn’t the recommendation be to go to growth stock? Growth stocks (apple, google, i presume are examples?) do not seem to be the recommendation…
because the market prices in the risk- a growth stock may trade at a higher P/E ratio, etc… so what if growth slows ever for apple/google or what if the biotech firm doesn’t get FDA approval on some drug or some big drug has to come off of the market b/c of bad side effects? risk/reward like everything we study- growth stocks probably have the most upside, but the most downside as well. defensive stocks are the ol’ reliables- in this economy, they get recommended because it’s more about playing defense than offense for the average investor getting smoked on the markets. whether that’s smart or not, depends on what you’re looking to achieve. cyclical stocks tend to follow the business cycle, sometimes in an exaggerated way. what you invest in depends a ton of all of the stuff we look at in the IPS statement, etc… age, life events, etc… growth stocks may work for you, but for your parents looking to retire in a year or 2, maybe it’s more about being a pretty consistent and steady performer in either an up or down market.
what you are saying about the risk component does make sense. growth stocks may have the best performance on average but they are probably much more volatile than defensive stocks and can have big down years in any given year–thus the recommendation for defensive stocks even though on average when risk is not taken into accoutn growth stocks probably provide the most consistently positive performance