Geopolitical risk from both a possible conflict in the Middle East and US-China trade tensions press...
BYD: A Chinese Bet on Batteries & Electric Vehicles
09/05/2018 5:00 am EST
In the current environment, almost any stock purchase is speculative; our latest recommendation — BYD Company Ltd. (BYDDF) — is particularly speculative in part because it is headquartered in China, notes Jack Adamo, editor of Insiders Plus.
In addition to the macro factors here, BYD Company gets substantial subsidies from the government. They were recently lowered, and we cannot be sure how that schedule will proceed in coming years. Last, but not least, due to a disappointing sales report, the shares are down 40% from last year's high.
Why on earth would I recommend this stock? In September of 2008, Warren Buffett bought 225 million shares of BYD for an 8.25% stake in the company. Even after the recent plunge, the shares are up more than 300% since Buffett's buy.
The company's main business is rechargeable batteries on every scale from phones to buses and mass storage for solar and other intermittent sources of electricity. Because of it horrific pollution problems due to rapid industrialization, China is the fastest growing user of battery powered vehicles in the world, and in fact is considering a gradual elimination of all internal combustion engine vehicles.
China is also the fastest growing user of solar power. That requires storage. So, even if its market were strictly local, BYD would have plenty of room to grow.
Competition in this arena is fierce, mostly within China itself, however, BYD is the industry leader and has been making strategic alliances to put its products in the hands of the largest, most important buyers. It is by far the best bet in the sector.
China will, without a doubt, be the world leader in the century ahead. I expect China to weather the coming financial storm better than the U.S., and I also expect it to recover sooner. Whether or not this stock will hold up through the coming storm is beyond my ken, but the growth potential, especially in the long term, is great.
I think it's a reasonable investment here with a good risk-to-reward ratio after its recent pullback. BYD Company Ltd. is a speculative buy up to $6.35 for risk tolerant investors. Buy only with a limit order, never a market order, as the shares are thinly traded.
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