Should You Buy Brambles Limited at This Share Price?

What happened to the BXB share price?

Brambles Limited [ASX:BXB] gained marginally by early afternoon today. The stock was trading at AU$10.93 a share, which was a 0.64% gain on the previous close. The Aussie market was sharply lower at noon due to a dip in the iron ore price. The price of energy has gone down lately as well. Commodity prices usually fluctuate together. Needless to say, mining stocks were down.

As expected, corrections are occurring in the commodities market. For those who are long on commodities in 2015, any correction downward is a good opportunity to buy in. I am long on both energy and iron ore in 2015. I believe oil will get to about US$70 at year end and iron ore will be around US$65. Therefore, investors still have opportunities to profit from the sector in 2015.

Why did this happen to BXB shares?

The average rating on Brambles is ‘hold’. The consensus view is that the company will continue to improve its earnings in 2015 and 2016. That’s fine because the company’s share price has been growing at a steady trend in the last three years.

Brambles has just purchased Chile’s leading provider of reusable plastic crate pooling services. The acquisition of Renta Pack at AU$79.5 million will give Bramble more leverage in Latin America and will profit from the fast growing enterprise that is Renta Pack.

What now for BXB?

That is all good news! However, the problem with BXB is that it is not very profitable to trade the stock. The stock has not been a foolproof investment scheme for long term investors. The stock fell off a cliff in 2008 and has spent most of the last few years regaining its value.
While the company has been operating well, stock investing in the company could have benefited from a little active management. The simplest low-frequency trading strategy would have given investors a 163% return over the last 15 years. This is not much return over 15 years; however, it is still better than simply holding the stock during that period.

With an initial investment of 20,000, at a leverage of 1.5 times and a maximum drawdown risk of 40% of total capital, the stock could have given you about 3 million in income over the last 15 years.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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