Order backlogs are among my favorite bullish catalysts.
To be clear, an order backlog represents the collective value of orders for which customers have made contractual commitments.
Think of order backlogs as the foremost measure of a company’s health.
Of course, 95% of order backlogs are enjoyed by massive companies — ones with well-known products in high demand.
For example, Boeing (NYSE:BA) is known for having a terrifically long order backlog, which has led to a tremendously resilient stock that hardly ever goes down.
On rare occasions, even a small cap can encounter an order backlog.
In fact, Ballard Power Systems (NASDAQ:BLDP) just announced an order backlog of $263.5 million.
BLDP’s market capitalization is a minuscule $905 million, but the news has shot shares into orbit.
Expect BLDP to remain vertical well into December as the momentum throttles up.
Have I sold you on the awesome power of order backlogs? Good. Because you’re about to discover three more “backlog” stocks to start buying ASAP.
Pent-Up Demand Ready To Explode
Few things can send a stock soaring like healthy backlogs can.
Why?
Backlogs are an early indicator of pent-up demand for a company’s products and services — and that can translat into rising sales.
And when they occur in small-cap stocks, which are often overlooked by Wall Street, the gains can be astronomical.
Here’s one such stock poised to profit from a massive backlog.
CPI Aerostructures (NYSE:CVU) makes aircraft parts for fixed-wing aircraft and helicopters.
It supplies parts for some of America’s best-known aircraft, such as the F-16 fighter jet and the UH-60 Black Hawk helicopter.
The company currently enjoys a $418 million backlog, more than five times CPI Aero’s current market value ($79 million).
Even better, 77% of the firm’s backlog is multiyear defense contracts.
In other words, the company’s future revenue stream is locked and loaded for years to come.
On a surge of new orders, shares have gained 38% in the last six months alone.
That’s more than three times the rise of the S&P 600 in the same period.
Furthermore, the stock trades at just 11 times forward earnings — a whopping 47% discount to the defense sector (21.2).
The combination of a booming backlog and a cheap stock make CPI Aero a perfect small-cap value play.
For instance, Siemens Gamesa Renewable Energy (MC:GAM) boasts a backlog of 20.4 billion euros ($24 billion) as of June 30, 2017. That equals almost two years of revenue!
The company is the result of an April 2017 merger between Gamesa Renewable Energy and Siemens' (DE:SIEGn) wind turbine business. And it’s a major manufacturer of wind turbines for power generation.
Now, generating power from wind is not especially profitable. But wind turbine farms are gigantic and highly engineered. So manufacturing them is a highly profitable business and likely to remain so.
And although the wind turbine power generation business is heavily driven by government subsidies, those subsidies are not going away anytime soon. Except possibly in the U.S.
But GAM’s business is worldwide and just last month, it won an order for a 300-MW wind turbine farm in Inner Mongolia, one of the largest orders ever in Asia.
To top it off, the stock is trading at a P/E of only 12.8 and with a 1% dividend. Plus, revenue is increasing at more than 10% annually in euro terms.
And with such a massive backlog, that growth is likely to continue.
Rounding Out The Trio With A Transport Play
Boring businesses make money. And in the case of New Flyer Industries (TO:NFI), they enjoy healthy backlogs too.
The Toronto-based company is the leading provider of transit buses and motor coaches in North America.
It doesn’t get much more boring than buses now does it? Don’t let that deter you from investing, though.
In 2016, the company held a commanding 46% market share in the transit bus segment. And there’s no sign of the dominance letting up.
Earlier this week, management provided an update on its order backlog. And it keeps climbing.
The total number of firm orders and options rose a healthy 8% year over year, to 10,537 units. To put that in dollar terms, we’re talking about $5.39 billion worth of sales, which is equal to about two years’ worth of sales at the company’s current run rate.
The enviable fundamentals extend beyond the backlog.
New Flyer sports solid earnings growth — up 23% in the last quarter.
It consistently invests in R&D and is levered to the fastest-growing trend in the transportation industry — electrification. In fact, it’s the only manufacturer that offers three types of zero-emission buses (battery electric, fuel cell electric and trolley electric).
It pays a respectable dividend, equal to a 2.5% yield.
Most important, shares have a history of outperforming the market without all the volatility. New Flyer’s beta checks in at 0.60. Yet the stock rose roughly 40%, roughly doubling the return of the S&P 500 over the last 12 months.
Again, the company’s business may not be exciting, but profits is profit. So don’t overlook this opportunity.