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The stock is cheap, and acting better. The sector (in the US, mostly) has been seeing some good numbers recently. It hit a 52-week high this week. We think it can be held, and >$10 is possible, even $12 under good conditions. $16 we think would be a stretch.
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BYD trades at a premium valuation of 37X forward earnings, and so there is room for multiple contraction, which can help explain some of the volatility recently. We consider BYD one of the higher quality names in the TSX, and it does have some near-term headwinds, but largely we do not feel the story has changed.
Over the past 10 years its total return CAGR has been 20%, over the past five years, 9.7%, and the past three years 5.4%. Its recent momentum is not great, and we could see lower prices in the near-term, but for a long-term hold we would be quite comfortable holding this name.
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LW reported misses on both top and bottom lines, revenue came at $1.61B compared to the consensus estimate of $1.71B, While EPS came at $0.78 missing the expectation of $1.26. Management also gave out weak guidance for FY2025 growth in the range of 3%-5%. The recent weakness management mentioned is largely due to restaurants raising menu prices, which can negatively affect consumer demand.
LW operates in a stable industry, but the recent earnings and guidance have been concerning, momentum in LW has also been poor, and it could take quite some time before LW starts to recover. We would not be in a rush here to add but wait until there is a clear sign of a recovery in place and better stock momentum
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The Impact of Commissions:
Another aspect related to trading stocks that we wanted to touch on was the impact that commissions have. A typical discount brokerage charges a commission of around $10 per trade. There are an increasing number of exceptions here with discount brokerages having cheaper rates and even offering low/no fee trading and free trading of ETFs. For simplicity reasons, we will use the $10 assumption to do a quick analysis to see how this impact returns:
- Let’s say an investor wants to buy a share in a stock trading at $100. The cost of this trade is $100 + $10 (fees) = $110
- If an investor makes say 10 trades a year and all are the same size previously mentioned, that will make for total annual transaction fees of $100 ($10x10).
- This is an important consideration that often gets overlooked because these costs should be factored into return calculations. If the investor here requires a 10% return, then they should bias this upwards by due to the additional fee charges.
- While we used a small figure in our trading value, it equated to 10% of trade size, so an investor would have to bias their total return up to 20%. The investor would need the stock that initially traded at $100 to reach $110 in order to cover costs and $120 to achieve desired return levels.
It's well-known that they're losing market share in China, but we're seeing stabilization. She expects one more quarter of negative growth, then there'll be easy comparisons and will stabilize. It'll enter an iPhone supercycle based on over 200 million phones that haven't been upgraded in 4 years. AI will help their apps business and boasts high margins. She sees $7.50-8 in EPS in 2025 or 2026.