Deterioration in sales and earnings at worst could move the company into bankruptcy, which makes its securities (stocks and bonds) worthless. A company with stable sales does not have this problem of not being able to cover its regular expenses. Investors' expectations of a company's earnings affect the prices of its stocks and bonds. Shareholders who anticipate a decline in earnings will sell their shares, which can cause a decline in the stock's price. Similarly, if investors anticipate an increase in earnings, they are willing to pay higher prices for the stock. If the company's earnings decline significantly, the company's bonds could be downgraded by ratings services such as Moody's and Standard and Poor's, causing the bonds to decline in price.

Common stocks of automobiles, home building, construction, and durable goods companies are referred to as cyclical stocks. Acyclical stock is the stock of a company whose earnings and prices move directly up or down with expansion and contraction of the economy. Business risk for a cyclical company increases when changes in the economy result in reduced consumer or business spending for that company's products. This occurred in 2001 and 2002 when the telecommunications equipment sector (companies such as Lucent, Nortel Networks, and Ciena) experienced a downturn due to an economic recession, which caused the telecom companies (AT&T, Sprint, and WorldCom) to reduce their spending on new equipment.

By investing in the common stocks of companies with stable earnings rather than those of cyclical companies, you can reduce business risk. Stable stock is the stock of a company whose earnings are not influenced by changes in the activity of the economy. Some examples are electric utility and consumer goods companies.