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. Boom

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

    A significant decline in activity across the economy, lasting ...
  5. Cyclical Stock

    An equity security whose price is affected by ups and downs in ...
  6. Expansion

    The phase of the business cycle when the economy moves from a ...
RELATED FAQS
  1. Does raising the minimum wage increase inflation?

    There are conflicting views on whether raising the minimum wage increases inflation. Tied to this is the question of what ... Read Full Answer >>
  2. How do open market operations affect the money supply of an economy?

    The open market operations conducted by the Federal Reserve affect the money supply of an economy through the buying and ... Read Full Answer >>
  3. What risks does a business owner face under a business structure with unlimited liability?

    The risks that a business owner faces under a business structure with unlimited liability are literally unlimited, but they ... Read Full Answer >>
  4. What is affected by the interest rate risk?

    Interest rate risk is the risk that arises when the absolute level of interest rates fluctuate. Interest rate risk directly ... Read Full Answer >>
  5. Why is a Free on Board (FOB) designation important for freight transportation?

    A free on board (FOB) designation specifies whether the buyer is responsible for freight charges and determines the obligations ... Read Full Answer >>
  6. How does the International Chamber of Commerce define the term 'Free on Board' (FOB)?

    The International Chamber of Commerce (ICC) is one of world's largest business organizations and has published a set of trade ... 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

    Understanding Delivery Duty Unpaid (DDU)

    Delivery duty unpaid (DDU) is a legal and international shipping term.
  7. Economics

    When Global Economies Converge

    The Divergences in global economic look very much like an explanation for what happened last year, though market observers continue to tout about it.
  8. Economics

    West Coast Vs. East Coast Economy

    The East’s focus on finance and banking contrasts the West’s drive toward technological innovation. But one thing is clear--each knows it needs the other.
  9. Investing Basics

    What is a Nominal Value?

    The nominal value of a security, such as a stock or bond, remains fixed for the duration of its life.
  10. Economics

    Explaining the Human Development Index

    The Human Development Index (HDI) is a metric developed by the United Nations to take the emphasis off economic growth and focus on human wellbeing.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center