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 Industry

    A type of an industry that is sensitive to the business cycle, ...
  4. Cyclical Stock

    An equity security whose price is affected by ups and downs in ...
  5. Recession

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

    A period of time during which sales of a product or business ...
Related Articles
  1. Investing

    The Ups And Downs Of Investing In Cyclical ...

  2. Active Trading

    Guard Your Portfolio With Defensive ...

  3. Mutual Funds & ETFs

    ETFs For Sector Rotation Strategies

  4. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center