Smokestack Industry

AAA

DEFINITION of 'Smokestack Industry'

Heavy manufacturing industries with factories that generally have banks of chimney stacks emitting smoke into the atmosphere. A smokestack industry is usually viewed by investors as an "old economy" business, with limited potential for long-term growth. Smokestack industries typically include automobiles, chemicals, steel and shipbuilding - in short, any heavy manufacturing industry that has been around for decades.

INVESTOPEDIA EXPLAINS 'Smokestack Industry'

Smokestack industries are generally perceived as having a high degree of cyclicality, since their fortunes are typically dependent on the state of the broad economy. Most smokestack industries have substantial levels of debt that can be detrimental to performance when the economy slows down.


During periods of economic expansion, smokestack industry stocks perform well, delivering healthy levels of earnings and cash flow. However, as cyclical industries, they tend to under-perform during recessionary times, due to significant declines in revenues, earnings and cash flow.


Astute investors tend to bail out of smokestack industries when the economy shows signs of slowing down and heading for a recession, and get back into them when the economy displays signs of an imminent rebound.

RELATED TERMS
  1. Business Cycle

    The fluctuations in economic activity that an economy experiences ...
  2. Recession Proof

    A term used to describe an asset, company, industry or other ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in ...
  4. Boom

    A period of time during which sales of a product or business ...
  5. Recession

    A significant decline in activity across the economy, lasting ...
  6. Cyclical Industry

    A type of an industry that is sensitive to the business cycle, ...
RELATED FAQS
  1. When has the United States run its largest trade deficits?

    In macroeconomics, balance of trade is one of the leading economic metrics that determines the trading relationship of a ... Read Full Answer >>
  2. Which is more important to a nation's economy, the balance of trade or the balance ...

    There is no question the composition of a country's balance of payments is more important than its balance of trade. This ... Read Full Answer >>
  3. What is the difference between cost and freight (CFR) and cost, insurance and freight ...

    The difference between cost and freight (CFR) and cost, insurance and freight (CIF) is essentially the requirement under ... Read Full Answer >>
  4. What is the difference between Cost and Freight (CFR) and Free on Board (FOB)?

    The difference between cost and freight (CFR) and free on board (FOB) lies in who has responsibility for various shipping ... Read Full Answer >>
  5. What are the ethical arguments against government subsidies to companies like Tesla?

    The ethical argument behind government subsidies is that they should be put into place to help industries that will, in turn, ... Read Full Answer >>
  6. How can tariffs cause inefficiencies in domestic industries?

    Any government regulation naturally creates inefficiencies in a pure supply and demand marketplace. When it comes to the ... Read Full Answer >>
Related Articles
  1. Investing

    The Ups And Downs Of Investing In Cyclical Stocks

    This strategy can be profitable but only if you know when to dump these stocks.
  2. Mutual Funds & ETFs

    ETFs For Sector Rotation Strategies

    Find out how exchange-traded funds can take the bumps out of your investing style.
  3. Active Trading

    Guard Your Portfolio With Defensive Stocks

    Find out how these securities can protect you from a market bust.
  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  5. Investing

    Earnings Cyclicality Exposes Profitable Trends

    Learn to explore a company's past profits to find today's opportunities.
  6. Economics

    What Is a Quota?

    In business, quota usually refers to the sales target for a salesperson or a sales team.
  7. Economics

    What Does Infrastructure Mean?

    Examples of infrastructure include mass transit, communication, sewage, water and electric systems, plus roads, bridges and tunnels.
  8. Economics

    Calculating the GDP Price Deflator

    The GDP price deflator adjusts gross domestic product by removing the effect of rising prices. It shows how much an economy’s GDP is really growing.
  9. Economics

    What's a Centrally Planned Economy?

    A centrally planned economy is one where the government controls the country’s supply and demand of goods and services.
  10. Economics

    A Comparison Between a Default and a Collapse

    Is the Greek default similar to the Lehman Brothers collapse?

You May Also Like

Hot Definitions
  1. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  2. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  3. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  4. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  5. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  6. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!