Have £1,000 to invest? I’d buy the FTSE 100’s Glencore today

I think Glencore plc (LON: GLEN) is well positioned to shift gears towards cleaner business in the years ahead.

| 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.

Toxic business is dead. Or it will be, sooner rather than later. Think of the move away from traditional tobacco towards healthier smoking alternatives and the switchover to renewable energy from traditional fuels, as examples. But what happens to the big companies in these industries?

Will they turn into fossils themselves or will they become newer, better, more agile versions of their former selves?

I have been grappling with these questions in some of my recent articles, one example being oil and gas major, Royal Dutch Shell. Mining and commodity trading giant Glencore (LSE: GLEN)  is another such company to consider, with its large stakes in the coal business.

It’s now transitioning into cleaner business, and has recently committed to putting a cap on its coal production. So the question for the investor is: Can it successfully pull off a transition away from coal in the long term?

Diversified business

A fair amount of its revenue (42%) is already generated from non-coal segments. Metals and minerals alone contribute 36% of this, while agriculture products contribute to the remaining 6%. The remaining 58% of revenue comes from the energy products segment, which is dominated by coal. I am of the view, that even though coal’s share is still substantial, Glencore has enough support from other operations to push through a transition.

The financials for the metals business give the company strong impetus for shifting gears too.Metals and minerals generate more earnings for it than the coal business, even though the revenue share is smaller. In other words, the company stands to become far more efficient by moving away from coal.

Moving away from coal

The process is already under way, as is evident from capex trends. Investment in coal is down to almost nothing, while that in metals like copper, zinc and nickel continues to be relatively strong.

Plans to cap future coal production may have something to do with the dwindling capex. But I think the cap is a token gesture for right now. This is because the cap amount is actually higher than its expected production in 2019. But if that cap is retained in 2020 and beyond, it will at least mean that the company is committed to keeping coal production flat.  

Despite the generous cap, I don’t think this is reason to doubt the overall clean-up plans. In a recent release, the company detailed a five-part strategy to contribute to its plan and this includes moving capital spending towards environment-friendly commodities and reducing emissions for others.

Rising share price

So far, Glencore looks like it can transition with relative ease. Investors have started warming to it once again as well. The share price has pretty much steadily risen in 2019 so far, after a slump in December. I get that being a cyclical stock, it always carries some risk, but on the flip side it can offer huge reward. I would not put all my eggs in this investment basket, but if you have £1,000 to invest, I think it is worth seriously considering the potential increase in capital it could offer over time.

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.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

Do record revenues and profits mean investors should pay more attention to the Halma share price?

A P/E ratio of 37 might put some investors off the Halma share price without a second look. But impressive…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

As BAE Systems’ share price heads towards £14, is there any value left in it?

BAE Systems’ share price has soared since Russia invaded Ukraine, but it still looks very undervalued and has great growth…

Read more »

Bronze bull and bear figurines
Investing Articles

Which is the better bank buy right now: Lloyds shares or HSBC?

HSBC pays a much higher yield than Lloyds shares, has much more value left in its share price, and doesn't…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

At 231p, is there value in the Legal & General share price? Here’s what the charts say!

Here, this Fool delves deeper into Legal & General to see if its current share price is the bargain it…

Read more »

Investing Articles

3 diverse FTSE stocks I’d consider buying to invest in Asia

This trio of FTSE shares could be the perfect way to invest in the fast-growing economies of Asia over the…

Read more »

many happy international football fans watching tv
Investing Articles

6.4% yield! Is ITV a dividend stock to consider buying during the Euros?

Our writer takes a look at ITV and assesses whether the FTSE 250 dividend stock might be a good fit…

Read more »

Illustration of flames over a black background
Investing Articles

Up 915% in a decade! This growth monster may also be the best FTSE income stock of the lot

Harvey Jones has been watching this top FTSE 100 growth and income stock for months and now he's found another…

Read more »

Investing Articles

The tax-free route to millionaire portfolios

• Although annual ISA subscriptions are capped, ISAs are an undoubtedly serious wealth-building tool: you can build serious wealth.

Read more »