LyondellBasell (LYB): The Value Trap Is Becoming a Setup

Some stocks seem priced cheap because the market has overreacted to the downside. Others are cheap because the business is not earning enough to justify a higher price. Telling those two situations apart is most of the work, and for a long period of time LYB sat squarely in the second group.

The math was not subtle. LYB posted a net loss in 2025 on falling revenue. The dividend it was paying out cost several times what the company was actually generating in cash flow. That is not a discount. That is a company writing checks against a balance it does not have, and the market sensed it appropriately. Anyone who bought LYB for the yield during that downturn was buying a promise that the company was not going to be able to keep.

In February the board stopped the negative flow. The quarterly dividend went from $1.37 to $0.69, ending fifteen straight years of increases. Management called it a recalibration ahead of a recovery. Whatever you call it, the payout now costs a fraction of what the business produces, and the company has held to returning 70% of free cash flow through the cycle. The cut was the admission that had to happen first.

Then the second quarter arrived and looked nothing like the four before it. EBITDA increased to $2.1 billion at a 23% margin. Adjusted earnings came in at $4.30 per share, well above consensus expectations. 

And now, a word of caution, because a number that much above consensus can invite the wrong conclusion. This was not demand returning. Middle East capacity is still not back to pre-conflict levels. This was a tightening of supply, so price responded. 

The clear version of the bull case is narrower than the headline number suggests. It is not that earnings climb straight up from here. It is that the trough is behind, that 2027 settles at a level far above 2025, and that the company uses this window to repair a balance sheet that was badly in need of it.

Lyn Alden framed the risk clearly:

“LYB is a classic value stock, and for a while that has meant value trap.

However, there's a good case to be made that the worst is behind them and their industry. They slashed their dividend earlier this year, and are doing what they can to maintain their leveraged balance sheet at the low end of investment grade, rather than letting it slip into junk grade.

I'm bullish, albeit with eyes wide regarding risk.” — Lyn Alden

Eyes wide is the right posture. The fundamental case has improved, but it improved partly for reasons nobody planned and nobody controls.

Which brings us to the part that does not require a forecast. Zac Mannes, senior analyst with StockWaves, has LYB structured bullishly over the coming months, and it currently sits among our Wave Setups. The fundamentals tell you why this is worth your attention. The chart shows you where sentiment actually is. 

Here are the parameters going forward.

Sentiment Speaks

It was about four weeks ago that LYB was featured as a new Wave Setup. You can see the parameters shared at that time. As of the writing of this article, price has now advanced to the initial resistance level of $69 (this was corrected from the $59.20 level shown in the original setup graph).

You can see that Zac’s count has us having bottomed at a major low, shown as Primary B at the end of 2025. Since then, price has formed the initial Intermediate waves (1) and (2) up and is in the process of the next lesser degree wave 1 of (3). 

What this signifies for the trader/investor is that once 1 completes and wave 2 pulls back in corrective fashion, that would set up the heart of a third wave higher that may target the $162 area overhead. Note that while Zac is not projecting timing on this chart, a typical structure like this would take many months to fill out.

The main takeaway from this setup is that Primary C will subdivide into 5 Intermediate waves. The (1)-(2) is already in place and the heart of the (3) may be imminent. This setup is valid for as long as price is over the $52 level.

Conclusion

A value trap turns into a setup at a specific moment. Not when the story improves, but when the reason the stock was cheap stops being true. For LYB that moment was February of this year, when the board cut the payout and stopped draining cash the company did not have. The second quarter got the attention, but the dividend cut was doing real work.

That does not make the risk go away. Supply came out of the market for reasons nobody at LYB planned, and consensus already expects 2027 to look smaller than 2026. Lyn is bullish with eyes wide, and eyes wide is exactly right here. 

What the chart offers is something yet needed and not provided by the fundamentals: specific parameters that tell us when the bullish thesis is wrong and would need revision. As long as price holds over $52, the structure Zac has outlined remains intact and the heart of the third wave stays in front of us. Below that, the count changes, and so does the trade.

Sentiment has not yet worked through what the balance sheet repair means. It rarely does this early. And that is usually where the opportunity sits.