We are watching the stock market “party on” for no real reason except we have no real new news on China. With a bit of time on our hands I thought I would share a couple “canary in the coal mine” companies I like to watch.
2 companies that are more local (Minnesota)–and thus maybe of heightened interest for me are Best Buy (NYSE:BBY) and the Mesabi Royalty Trust (NASDAQ:MSB). Of course MSB isn’t a company, but is a royalty trust, which owns a bunch of land in northern Minnesota which holds iron ore. Best Buy, as everyone knows, is kind of the last man standing (or is it woman standing?) in the consumer electronics business.
I like to watch the financials of these 2 because they kind of represent 2 different segments of the economy–1 is consumer focused, the other dependent on the manufacturing segment. I don’t claim to have any special knowledge of these 2, but I have watched them for years and years.
The financials of these firms can give us a clue on the health of various economy segments. For instance sales at Best Buy can drop like a rock if the consumer is under stress–i.e. unemployed etc. The MSB units can flucuate wildly based on investor thoughts on the future (the next year or two).
Best Buy released earnings today which were pretty good–importantly total sales and comparable store sales were up a bit. Instantly I know that the consumer isn’t feeling much stress–for now. You can be certain that unnecessary large screen TVs and home theater systems are some of the 1st things to leave ones “wish list” when there is fear in the air. Chinese tariffs have not bit hard yet, but the company is cautious about the future with new tariffs scheduled to kick in soon.
Mesabi released royalty payments received from Cleveland-Cliffs (the miner and buyer of the iron ore) (NASDAQ:CLF) on 8/2/19 for the quarter ending 6/30/2019 and they were fairly solid at almost $12 million which translates into around 90 cents/unit.
So what is this telling me? Best Buy tells me things are “ok” as far as the consumer is concerned–and this is most important for forecasting any recession (at least to me) in the next couple of quarters. Mesabi financials tell me the industrial segment is doing well–BUT Mesabi investors tell me CAUTION. MSB has traded as high as $32 in the last year, but is currently at $22.68–investors are no longer willing to “pay up” for the high yield (10-15% depending on distributions declared). Investors are forecasting weakness ahead.
With this data it would seem unlikely that we will see much real economic weakness in the next quarter or two. Of course this can change quickly, but I wanted to share my thoughts on these 2 “canaries”.