Why Have Glencore PLC, Globo Plc & Tern PLC Been So Volatile In Recent Days?

Glencore PLC (LON:GLEN), Globo Plc (LON:GBO) and Tern PLC (LON:TERN) are very different equity investments, argues Alessandro Pasetti.

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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Tern (LSE: TERN) fell almost 14% from its intra-day high on Tuesday, but Globo (LSE: GBO) fared even worse yesterday, when its shares lost 16% of value during the trading session. Glencore (LSE: GLEN), meanwhile, is down 10% since it bounced back to 144p last week on the back of a new restructuring plan.

Here’s my quick take on these three very different companies. 

Top Pick 

Globo’s downbeat performance since mid-June has surprised me. Its shares roared back today, and were up 15% at the time of writing, but I am puzzled. It is really hard to say why they have fallen and risen so much during the last couple of days, given that aside from an update on its high-yield bond fundraising, there’s not been much to report this week. 

This process has been delayed by market events through the summer of 2015,” the tech company said on Monday, and it’s possible that investors were not pleased with that. Still, it also said that its financing plans have received “strong interest from numerous investors“, and frankly its balance sheet doesn’t strike me as being particularly stretched, while its core cash flow profile is sound. Trading multiples also point to value. 

It has succumbed to broader market volatility in the third quarter, but its first-half trading update was decent and personally I think its stock remains a good buy at 28p. 

Trust

I wouldn’t blame you if you are reluctant to invest in Glencore.

On the one hand its update on 7 September was good news, as it signalled that management is ready to take drastic action to preserve cash flows in order to ride out a very difficult economic juncture for all the major minors. On the other, it will take time to determine whether the “New Glencore” will be any better than the “Old Glencore”, and several elements of its radical restructuring deserve attention.

At 131p, the shares hover around their all-time low of 118p, yet before a sustained rally takes place, investors must regain trust in the company as well as in the global economy.

Risk 

Tern is up 10% today, and currently trades at 21p. This is a tiny firm that invests in the tech world, and as such I would expect it to have a relatively weak balance sheet, negative operating cash flows and funding needs that are essentially backed by investors who are willing to embrace risk.

That’s precisely what you’d be buying today, which is not necessarily a big problem given that its investment portfolio could indeed deliver rapidly rising returns.

The biggest risk is represented by possible dilution stemming from several rounds of equity financing that may be needed to support its cost base as well as its ambitious expansion plans. 

Until higher revenues are generated, though, personally I’d leave it to opportunistic traders.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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