CFA Level I · CFA Level I Exam · Industry and Competitive Analysis
An analyst classifies companies by their sensitivity to the business cycle. Which of the following industries is most likely classified as non-cyclical (defensive)?
Packaged food and household staples are most likely non-cyclical. People keep buying necessities in recessions, so sales and earnings are relatively stable. Luxury cars and construction equipment are big-ticket or capital purchases that fall sharply when income and confidence decline, making them cyclical.
- APackaged food and household staplesCorrect
- BLuxury automobile manufacturing
- CCommercial construction equipment
Explanation
Demand for food and household staples stays fairly stable through the cycle because consumers buy these goods in all conditions. Luxury cars and construction equipment are discretionary or capital purchases whose demand swings sharply with income and business confidence, so they are cyclical.
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