Smokestack Industry

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.



comments powered by Disqus
Hot Definitions
  1. Federal Reserve Note

    The most accurate term used to describe the paper currency (dollar bills) circulated in the United States. These Federal Reserve Notes are printed by the U.S. Treasury at the instruction of the Federal Reserve member banks, who also act as the clearinghouse for local banks that need to increase or reduce their supply of cash on hand.
  2. Benchmark Bond

    A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue".
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  4. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  5. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  6. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
Trading Center