Hey there. Unless on Braden and Simon's episode they repeat it, it was actually me who stated this about cyclicals. And yes, it is true. Keep in mind, it is not a guarantee if you purchase a cyclical stock at a high P/E the price will go up. But it's the simple structure of their earnings and the economy that makes this statement true and kind of defies all logic of stock purchasing, that being buy at low P/Es.
Cyclicals tend to have high P/E ratios at the bottom of an economic cycle and low P/E ratios at the top of an economic cycle. The reasoning for this is the market is always forward looking. So, during an economic top, markets will likely expect earnings to dip and thus do not value that cyclical company based on its trailing twelve month earnings (which would be at their peak), instead valuing it on forward earnings which they expect to fall. And as such, you get a very low P/E.
I'm going to work from economic peak to trough here, so you can see how this works. And I'm actually going to use BRP Inc, a Bull List stock here, and use real world earnings and share price.
Economic Peak (Mid 2023, right when rates started going up)
Date: Mid 2023
Stock Price: $110.00
Earnings Per Share (EPS): $12.46
Price-to-Earnings (P/E) Ratio: 8.8
Economic Low (High P/E ratio. I would argue we are there right now)
Date: December 2024
Stock Price: $72.86
Earnings Per Share (EPS): $2.59
Price-to-Earnings (P/E) Ratio: 28.13
So as you can see, during economic peak, price to earnings is low, and earnings have likely peaked. Whereas as we sit now, with a P/E of 28x, the stock "looks" expensive, but is likely cheap as earnings are likely expected to increase.
Does this make sense?