Investing In UK Cyclical Stocks In 2026

Investing in cyclical stocks can be a volatile but lucrative strategy. As many investors have recently learned, the economy doesn’t grow in a straight line. Instead, it’s much more like a wave moving up to a peak and then down to a trough, repeatedly. 

This is better known as the economic cycle. It has four distinct stages:

1. Expansion – Sustained growth creates a favourable environment for businesses, but eventually creates inflation.
2. Peak – Growth reaches its maximum point, exposing imbalances in the economy that need correction, such as high inflation.
3. Contraction – Growth slows or sometimes even reverses, causing the economy to cool down, which can sometimes trigger a recession, but typically enables inflation to drop to healthier levels.
4. Trough – The economy reaches its lowest point and begins to recover, starting a new period of expansion.

With mounting geopolitical and trade tensions, fears of an inflationary comeback are gripping economies worldwide. While it’s unclear what the overall impact will be, central banks like the Bank of England have begun slowing their anticipated pace of interest rate cuts.

Bearish investors suspect we’re approaching the start of another Contraction phase of the economic cycle, driven by low growth and uncertainty. And for many cyclical stocks, this has created enormous market volatility. 

What are cyclical shares?

Cyclical shares are businesses and industries that are strongly correlated to economic growth. They can drastically outperform the stock market during a period of expansion. However, when contraction eventually appears, they’re more likely to underperform.

Companies can also have their own unique business cycles. For example, travel stocks tend to see sales pick up around the summer and winter holidays.

Investors capable of successfully identifying these businesses’ profit and sales cycles could achieve impressive returns. However, the duration of each stage can vary drastically each time around. And that makes trying to perfectly time a cycle a loser’s game. 

Cyclical vs non-cyclical stocks

Not every company follows the economic cycle, of course. There are plenty of businesses whose products remain in demand even when consumer spending is trending downward. These are known as non-cyclical, secular, or defensive stocks.

Some examples are consumer staple retailers or healthcare providers. After all, regardless of whether prices are rising, people need access to food and medicine.

Examples of cyclical sectors

There are some exceptions for companies within each market sector. But generally speaking, the majority of firms operating in these industries are cyclical stocks.

• Airlines – During economic recessions, consumers and businesses are less likely to spend on air travel.
• Automotive – New and used vehicle sales tend to drop off during contraction and pick up again during expansion.
• Construction – Most construction projects are funded using debt financing, which is typically more expensive during contraction as interest rates are boosted to tackle inflation; therefore, projects are often delayed or put on hold until the money supply is less restrictive.
• Consumer Discretionary – Rising interest rates often slow consumer spending, resulting in discretionary spending dropping off.
• Finance & Banking – Finance businesses sometimes have mixed responses to periods of economic downturn — rising interest rates enable lending activity to become more profitable, however, the higher cost of debt makes selling new loans more challenging.
• Industrial Equipment – Sectors like airlines, automakers, construction, and manufacturing all suffer during contraction, and companies involved in designing and producing the equipment used by these industries tend to suffer from a domino effect, resulting in lower sales and demand.
• Luxury Products – Similar to Consumer Discretionary, when money is tight, sales of high-end fashion, diamond jewellery, and luxury watches tend to fall during a contraction.
• Manufacturing – During expansion, companies that manufacture products often see demand skyrocket; unfortunately, the opposite is true during contraction.
• Mining – Mining stocks are highly susceptible to the movement in commodity prices, as demand for raw materials tends to climb during expansion, resulting in higher profits; however, when contraction occurs, the reduced throughput of manufacturing firms causes demand for raw materials to suffer and commodity prices to fall, directly impacting the profitability of this industry.
• Real Estate – Liked to the banking industry, when interest rates increase, mortgages become more expensive, which directly impacts home affordability, typically resulting in fewer consumers seeking to buy a new home.
• Travel – Similar to airline stocks, hotels and cruise line businesses tend to suffer during contraction from lower consumer spending on travel.

Top cyclical stocks in the UK

Rio Tinto

Rio Tinto is a global leader within the metals and mining industry. The group engages in the exploration, development, and production of critical materials. With a diverse portfolio of extraction sites, the group specialises in iron ore, aluminium, and copper – the latter of which has become an increasingly central part of its growth strategy.

With the rise of renewable energy technology and electric vehicles, the demand for lithium has skyrocketed. Rio Tinto has made significant moves to capitalise on this trend, most notably completing its $6.7 billion acquisition of Arcadium Lithium in 2025, making it one of the world’s most significant lithium producers virtually overnight. Its Rincon lithium project in Argentina is now ramping toward full commercial production.

It’s worth noting that Rio Tinto has fully exited diamond mining following the closure of its last remaining diamond asset in March 2026, marking the end of over 50 years in that business.

Key Metrics:

• Market cap: £125.7bn
• Average daily volume: 1.93m
• HQ: London, UK
• Cash/debt: $9.45bn/$23.5bn

InterContinental Hotels

InterContinental Hotels Group (IHG) is a hospitality conglomerate operating over 6,400 hotels around the world under 19 brands. The portfolio includes household names like Crowne Plaza, Holiday Inn, Six Senses, and Hualuxe, catering to every type of traveller – from budget-conscious overnight stays near airports to luxury five-star retreats in some of the world’s most sought-after destinations.

Key Metrics:

• Market cap: £21.2bn
• Average daily volume: 685.3k
• HQ: Windsor, UK
• Cash/debt: $1.1bn/$4.6bn

Burberry

Burberry is a designer, manufacturer, and retailer of luxury fashion. Since its inception in 1856, the group has built a reputation for quality and craftsmanship – most notably after inventing gabardine, a unique weatherproof cotton fabric that remains synonymous with the brand to this day.

It has been a turbulent period for Burberry, however. The group’s market cap has fallen from roughly £6.7bn in 2023 to approximately £4.2bn by April 2026, reflecting broader challenges across the luxury sector, including weakening demand from Chinese consumers and a difficult macroeconomic environment for discretionary spending. The group has been undergoing a strategic reset under its current leadership, refocusing on its core heritage and higher-end positioning to restore profitability.

Key Metrics:

• Market cap: £4.22bn
• Average daily volume: 1.27m
• HQ: London, UK
• Cash/debt: £452m/£1.5bn

Trainline

Trainline is a digital technology business operating within the travel industry. Its mobile app and website allow travellers to find, compare, and buy tickets for trains and buses across Europe.

The group works directly with rail and coach operators to display and sell tickets to tens of millions of travellers on its digital platform. Its mission is to become a one-stop shop for all rail and coach travel across Europe.

Key Metrics:

• Market cap: £929.6m
• Average daily volume: 1.26m
• HQ: London, UK
• Cash/debt: £57m/£165m

Motorpoint

Motorpoint is an independent e-commerce and brick-and-mortar vehicle retailer based in Derby, UK. The group focuses exclusively on the nearly-new segment of the used car market, allowing consumers to purchase almost brand-new vehicles at significant discounts compared to buying new.

Beyond selling directly to consumers, the firm also operates an online wholesale platform to tap into the business-to-business market. Despite a challenging environment for discretionary consumer spending, Motorpoint has shown signs of recovery – the group reported a record-breaking year of sales heading into 2026 and is forecasting profits of £7.5m.

Key Metrics:

• Market cap: £107.5m
• Average daily volume: 44.01k
• HQ: Derby, UK
• Cash/debt: £4.5m/£55m

How to identify cyclical stocks

It’s entirely possible to have cyclical stocks in non-cyclical industries and vice versa. So, being able to identify whether a business falls under this category is important in regard to portfolio diversification.

Fortunately, being able to spot these companies isn’t particularly challenging. The easiest method is to look at the year-on-year sales performance over the past decade. Suppose the revenue stream has been consistently rising over long periods. In that case, the odds are that it’s a non-cyclical company. 

However, in rare cases, cyclical companies can hide their true nature through acquisitions and contract timing, requiring a more thorough investigation.

Similarly, the same top-line analysis method can be used on quarterly revenue data to identify individual business cycles. Suppose a pattern consistently emerges that a group is generating more sales during a specific part of the year. In that case, this is likely a cyclical company.

How to invest in cyclical stocks

Buying and selling shares of a cyclical business works identically to any other industry. However, when it comes to making a smart investment, there are a few traits to look for.

Historically, economic contractions can last anywhere from a few weeks to several years. During this time, cyclical companies need to be capable of weathering the storm. 

While revenue and earnings will continue to flow during these unfavourable conditions, they will be at a reduced rate. And for firms with next-to-no control over their operating expenses, this can create a lot of problems.

For example, the expenses of mining companies are predominantly fixed. This cyclical sector thrives when raw material prices are high as it paves the way for exceptional profit margins. But when prices are low, it can quickly push a once-thriving business into the realm of unprofitability.

That’s why it’s essential to check the state of the balance sheet for cyclical businesses. In my experience, the best cyclical shares to buy are the ones with strong liquidity and a large cash war chest.

Having immediate access to capital as and when needed helps eliminate most insolvency concerns. But more interestingly, it reduces the group’s reliance on external financing during a time when raising additional capital is much more expensive.

Are cyclical stocks right for you?

Investing in cyclical stocks can generate substantial returns during times of economic growth. Therefore, including this class of investment in a portfolio is a worthwhile venture. However, it’s important for an investor to diversify across multiple industries, both cyclical and non-cyclical as well.

This combination approach allows investors to become better positioned to capitalise on growth during the good times and mitigate the downside during poor economic conditions.