One of My Favorite Indicators...

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Published on Monday, 24 October 2011 09:54

Written by Andrew Snyder, Editorial Director, Inside Investing Daily

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One of my favorite indicators says it’s time to buy. It's proof things are not as dire as they seem.

Our bullish-for-now view has paid off well. So far this month, all three big indexes have surged by over 11%. And if this one powerful indicator is right... it's gonna get even better.

Our take is simple.

Thanks to the convergence of several cycles (including the powerful presidential cycle), the next six to eight months are going to be strong. And now, thanks to a single item in General Electric's (GE:NYSE) report on Friday, it may be even better than we thought.

The last time we saw an order backlog like this was... never. It's a fresh record.

With $191 billion worth of orders waiting to be finished, General Electric has never had this many jobs in its back pocket. Like having too many dates lined up on a Friday night... it is a good problem to have.

Order backlogs are one of my favorite indicators for a simple reason -- unlike just about everything else in a quarterly report, they can't be fudged.

Backlogs can't be backed out as a "one-time" cost. They can't be a random glitch because of an "accounting effect" like Verizon tried to pull last week.

A company either has the contract or they don't. It's black or white.

Think of it this way. Which company would you rather own -- the firm bouncing from one job to the next or the one with a year's worth of work in signed purchase orders?

These days... you've got lots of choices. GE is one of many.

Despite the economic malaise, companies have found plenty of business -- but, too afraid to hire or dump their cash into a new factory, they're saving it for later. It's the kind of potential energy that, once realized, sends stocks (and economies) soaring.

Read through the earnings reports of the past week or so, and you will see a surge in backlogs is a common theme.

Beazer Homes (BZH:NYSE) says it has a backlog of home sales 90% higher than a year ago.

Boeing (BA:NYSE) has so many planes on backorder, its customers are jumping in line at Airbus.

Thanks to strong government sales FLIR System's (FLIR:NASDAQ) order book surged over the past three months. It now has $400 million worth of projects in queue.

After announcing its fifth-straight quarter of double-digit year-over-year revenue growth, the boss at Air Products and Chemicals (APD:NYSE) had good news about what's ahead for his firm.

"While the near-term economic outlook is for continued slow growth and is clouded by global economic and policy uncertainties," said CEO John McGlade, "we are well positioned with a large backlog of projects backed by signed customer contracts."

In other words, it's dreary, but look over there... a peek of sunshine.

And finally... your free gift.

Before tomorrow's opening bell, Wabtec (WAB:NYSE) will open its books and give us a look at its latest figures. The last time it reported -- on July 26 -- it revealed a record-breaking quarter, with a best-ever $1.51 billion backlog.

Yet Wall Street was too wrapped up with Europe to reward the company...

After the earnings report, it tried to break out. The strong uptick is obvious. But the beast of an overcorrelated market brought shares down with the rest.

But tomorrow may be different. A good earnings report coupled with a market itching to end the year on a high note will send shares higher. With a beta of 1.45, the stock will be able to break the chains that shackle it to the overall market.

This idea that order backlogs are growing and, in many cases, reaching record levels hits on an idea we've mentioned a lot. There's untapped value out there.

Although Europe remains a day-to-day threat, the market is finally waking up to the idea that there is room to grow. It's not 2007... but it sure isn't 2009, either.

One of our favorite indicators is flashing buy... and the market is playing along.