Road ahead clear for Linamar

The Stock: Linamar Corp.

Recent price: $13.54

Trend: Third-quarter bullish trends in the transportation sector are echoed in aerospace, automotive and transportation equipment stocks.

As the wheels of commerce start to move more fluidly, industry feeds back into the transportation infrastructure, expanding economic growth to the industrial sector.

The Toronto Stock Exchange may be driven by commodity stocks, but Canadian investors have stakes in a stable of domestic transport industrials, illuminating the importance of this segment of the economy.

Admittedly, government subsidies abound and the Canadian taxpayer often also has a stake in these companies - a reminder that the structural flaws and cyclical hardships the sector endures are not unrelated. Investors don't seem to mind the partnership, and appear ready to take risks in these stocks again.

Bombardier Inc. is the nation's biggest industrial player in the group. Its stock turned Stock Trends Bullish at the beginning of the month, following the bullish trend of transport stocks.

Despite the considerable land transportation segment of the company's profile, Bombardier's aerospace division dominates the investment valuation of its share price - so the recent uptrend in airline stocks is encouraging.

The rosier picture for aerospace stocks also shows in Canadian players Héroux-Devtek Inc. and CAE Inc., with both stocks performing well this summer. But the stocks of industrial suppliers to other segments of transportation demand are also developing bullish trends. Shares of AirBoss of America Corp., supplier of rubber-based products, hit a 52-week high last week and alternative-fuel stocks Ballard Power Systems, Hydrogenics Corp. and Westport Innovations advanced significantly. Investors should have a nose for the intertwined trends of these industrial stocks.

The Trade: As a supplier to the sickly auto industry, Linamar Corp. was battered by the bankruptcies of General Motors and Chrysler. Although the rehabilitation of the Detroit auto makers is a work-in-progress, Linamar's share price shows the company's outlook is much improved. Last week's announcement of a $54.8-million investment in Linamar's green technology by the federal government perpetuates taxpayers' support of the company, but the stock had already been trending positively since its big breakout move in early May. Linamar made huge gains in the second quarter, rallying off its March low by over 260 per cent. Investors can still trade the stock's bullish trend, as Linamar moved off its 13-week moving average trend line to hit a new 52-week high last week.

The Upside: A dear adage of technical analysis is "the trend is your friend," a belief that is reinforced every time a stock price rallies off a trend line. It is this support that gives an investor confidence in further price advances. The share price move above $14 suggests that investors have overcome some of the buying exhaustion that stalled Linamar during the previous two months, and that the stock will continue along its bullish trend.

The Downside: When a stock drops below its trend line, you've lost a friend. Currently, a Stock Trends Weak Bullish indicator, signalling a share price drop below the 13-week moving average trend line, is triggered at $11.50 and would signal an exit from this trade.

Skot Kortje has been analyzing stock market trends for 15 years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995.