Why powerful earnings gains should propel cyclical stocks

US companies outdid Wall Street's expectations in the 2nd quarter of 1994, earning billions more than the pundits predicted. Cyclical stocks, which move in concert with economic cycles, helped power those earnings. The worst time to buy cyclical stocks is when they look cheap. Multiples are lowest when earnings are at a peak, and buying cyclical stocks at that time can be disastrous. Automobile stocks are an example. Deep cyclicals, whose profits have just begun to flow, include such commodities as steel, aluminum, chemicals, copper, and paper. Demand for such materials is exploding in the developing world and will get a further kick as Europe and Japan recover.