Can Glencore plc and J Sainsbury plc make you rich?

Bilaal Mohamed considers the prospects for investors in Glencore plc (LON: GLEN) and under-pressure J Sainsbury plc (LON: SBRY).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I’ll be discussing the outlook for multinational mining giant Glencore (LSE: GLEN) and the UK’s second-largest supermarket Sainsbury’s (LSE: SBRY). Can either of these FTSE 100 giants make you rich?

Growth priced-in

Diversified mining giant Glencore updated the market yesterday with its first quarter production report for the three months to the end of March. The Anglo-Swiss company reported lower production of copper, zinc, lead, coal and oil, all due to planned cuts announced last year. Full-year production guidance remains unchanged, except for exploration and production of oil, which came in 300,000 barrels lower than previous guidance.

The medium-term outlook for Glencore looks promising, with analysts expecting earnings to remain broadly flat this year at around £514m, followed by an impressive 79% rise to £920m for 2017. But this growth comes at a price, with the shares trading on 41 times forecast earnings for this year, falling to 23 times for the year ending December 2017.

In my opinion future growth is already priced-in, and the shares could experience a significant fall if next year’s results fall short of the ambitious forecasts.

Supermarket in decline

Also reporting yesterday was the UK’s second-largest supermarket Sainsbury’s as it announced its annual results for the year to the end of March 2016. The supermarket chain reported a pre-tax profit of £548m compared to a £72m loss a year earlier, with group sales slightly lower at £23.5bn, compared to £23.8bn for fiscal 2015. Significantly, management has decided to cut the full year dividend from 13.2p per share to 12.1p.

The supermarket has struggled in recent years, with earnings in decline, and dividends being cut. Our friends in the City are expecting this to continue with market consensus predicting a 13% fall in underlying profits to £405m for the year to March 2017, with a further 2% decline to £398m pencilled-in for next year.

At current levels Sainsbury’s shares look fully valued, trading on around 13 times forecast earnings for the next couple of years. Dividends are no more than average at around 3.5% for this year and next. Investors might want to stay on the sidelines until earnings stabilise and growth starts to appear on the horizon.

The verdict

Glencore shares have gained 45% in the last three months and are now beginning to look overvalued. Investors who are still keen on Glencore should probably wait for the next dip or pull-back in the share price to gain a more favourable valuation and entry point.

Sainsbury’s shares look full valued at the moment, and I don’t see much potential for capital growth given the expected decline in earnings. Dividends are no more than average at just over 3%, and better yields can be found elsewhere in the FTSE 100 for investors looking for income.

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.

Bilaal Mohamed 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.

More on Investing Articles

Investing Articles

Start supercharging passive income with REITs!

Are REITs the ultimate investment for boosting income generated from a portfolio? Zaven Boyrazian explores some of the most lucrative…

Read more »

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Starting in June, I’d invest £1,000 a month to aim for a £102,000 second income in retirement

This author highlights a less well-known FTSE 100 stock that could help his portfolio generate a very big second income…

Read more »

Investing Articles

Down 47% in 5 years, is the IAG share price due a bounce?

Many companies in the travel sector have seen fierce rallies since 2020. But with the IAG share price still down…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Despite its drop, I reckon this is one of the best FTSE 100 stocks to buy and hold!

The FTSE 100 has been climbing in 2024 but this favourite of our writer's has been falling. Despite this, she’s…

Read more »

Investing Articles

AI stocks vs EV shares; which is the best sector for me to invest in?

Jon Smith considers the recent rally in AI stocks and weighs up whether to allocate more money there versus EV…

Read more »

A graph made of neon tubes in a room
Investing Articles

Do Greggs shares have even more growth ahead?

Greggs shares have seen some solid growth in the last few months, as the economy shows positive signs. But is…

Read more »