This Stock Says the Boom is Still Strong


The canary in the coal mine. I’m sure you’ve heard this phrase before.

But do you know where it comes from?

Apparently, old time miners would bring a caged canary into new coal seams.

A man named John Haldane was responsible for this practice.

You see Haldane liked to dabble with deadly gasses. He would often lock himself in a gassed up, sealed room to record what it felt like to be slowly poisoned.

While doing this Haldane noted the fact that the carbon monoxide combined with haemoglobin in the blood, and the resulting combination stained the tissues of the poisoned bright red.

When coal miners mysteriously started dying, their faces flushed and red, Haldane put two and two together and realised carbon monoxide was the culprit.

This was a man who clearly took his research very seriously!

But he also worked out that canaries are especially sensitive to methane and carbon monoxide. This made them ideal for detecting any dangerous gas build-ups.

As long as the bird kept singing, the miners knew their air supply was safe. A dead canary meant it was time to exit, pronto.

The canary in the coal mine is always the first to go, whether in reality or in metaphor.

Today it’s a signal that something terrible is happening, whether financial disaster, medical breakdown, or political scandal.

The other term used in financial circles for a tell-tale sign is bellwether.

Unlike the canary metaphor, this word at least allows for the possibility of good and bad outcomes.

The bellwether was the ram that led a flock of sheep around. He had a bell on his neck. So to work out where the flock was, you simply had to listen out for the bellwether.

Wouldn’t it be great if you had a stock that was bellwether for the state of the global economy? One company that told you everything you needed to know.

When to be daring. And when to manage risk…

Well, you do!

And it’s going great at the moment…

Ripping higher

Caterpillar [NYSE:CAT] shares are up 55% for the year.

That’s a stunning result for a company so big.

As you probably know, Caterpillar is a massive company that sells all manner of machinery, engines and construction equipment.

It’s been around since 1925, and operates around the world. From North America to China, and everywhere in between.

Being so big, and having operations so wide, it’s the perfect bellwether stock to see how the global economy is ticking over.

Especially now that it’s a big operator in China.

Which is why it’s important its third quarter results continued to look good.

2017 full year sales Outlook - Caterpillar 13-12-2017

Source: Caterpillar
[Click to enlarge]

In the third quarter alone, the company presented a 36% construction related sales increase, a 36% sales increase of mining equipment and a 14% energy sales boost.

And the future looks bright too…

The graph below confirms that the real output of the machinery industry is also accelerating. New orders just hit their highest level since 2014, which means that production should accelerate before we enter 2018.

Machinery - Industrial Production & New Orders 13-12-2017

Source: FRED
[Click to enlarge]

This canary is still singing

Caterpillar is one of those stocks that provides shareholders with tremendous capital gains during economic upswings.

And it does the exact opposite during weaker times.

The simple and obvious reason is its business model of selling highly cyclical products all over the world.

It’s a ‘real world’ stock. It sells real products that have real productive impact. That’s why I always keep a close eye on it.

At one point it will be the canary in the coal mine. The signal to get out quickly.

But judging from its recent results, things are still looking good. And in my opinion, you can invest accordingly.

Ryan Dinse,
Editor, Money Morning

Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:

Money Morning Australia