Why I’d buy the Glencore share price at today’s dirt cheap price

Harvey Jones says it’s hard to ignore the 5%+ yield offered by FTSE 100 mining giant Glencore plc (LON: GLEN).

| 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.

Investing in FTSE 100-listing mining giant Glencore (LSE: GLEN) certainly isn’t boring. Its shares crashed from 300p to just 90p in 2015, only to end 2016 back at 290p. Quite a ride.

Corruption threat

The Glencore share price is down 26% over the past 12 months, and fears of a global slowdown aren’t the only culprit. It is now being probed for “corrupt practices” by the US Commodity Futures Trading Commission (CFTC), amid reports of money-laundering and other compliance issues in the Democratic Republic of Congo, Venezuela and Nigeria. It has been ordered to hand over documents to the Department of Justice.

The group was also caught up in President Trump’s sanctions on Russian companies, because of its 8.75% stake in Russian aluminium producer Rusal, although these have since eased. 

Billionaire CEO Ivan Glasenberg plans to retire in the next three to five years. His final stint at the world’s biggest mining company isn’t going to be dull.

At the coal face

In 2018, Glencore’s adjusted EBITDA earnings rose 8% to $15.8bn while net income rose 5% to $5.8bn. It was boosted by a sharp rise in commodity prices, still the main factor driving mining sector sentiment and stock movements.

Earnings have cooled on falling prices for thermal coal, which makes up around 25% of the group’s earnings. Coal is likely to face growing environmental challenges, for example, Norway’s massive sovereign wealth fund may sell its $1bn stake to meet its Parliament’s tighter ethical investing rules. However, that is only around 2.03% of Glencore’s stock, and the shift to electric power could boosts earnings at its copper and cobalt mines in Africa.

Glencore has suffered one or two broker downgrades in recent months, amid concerns that its start-of-year rally left the share price vulnerable. Trading at 10.9 times forward earnings, it hardly looks overvalued, though.

War talk

Net debt is a worry though, up 44% last year to a higher-than-expected $14.7bn, even if it’s still within its desired range of between $10bn to $16bn.

The £40bn Swiss-based, London-listed company has enjoyed healthy cash flows, which funded $5.2bn of shareholder returns and buybacks in 2018. In February it announced a base distribution of $0.2 per share worth $2.8bn in total, plus a new $2bn buyback programme. The board may also top this up, depending on market conditions, and the progress of this year’s targeted $1bn of non-core asset disposals.

Macro concerns

The current yield is 5.64%, comfortably above the 4.5% average yield for the FTSE 100. This makes Glencore a top dividend stock, and a tempting long-term hold, but should you buy it now? Concerns over the global economy are growing (aren’t they always) while China’s growth is slowing, with Trump’s trade war aggravating the problem.

We could see a turnaround on both these issues shortly, though. The Fed is expected to cut interest rates two or three times this year, which may light up stock markets, while Trump is tweeting optimistic signals on talks with China. Both could boost Glencore. 

Commodity stocks are cyclical and with the stock down a quarter in the last year, now may be a buying opportunity. Those corruption charges could weigh on the share price for some time, though.

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.

Harvey Jones 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

Investing Articles

5 FTSE 100 shares to consider buying for passive income right now

The FTSE 100 is having its best start to the year for ages, and that's pushing the top dividend yields…

Read more »

Investing Articles

One overlooked cheap share to tap into the year’s hottest theme?

This Fool describes the key things to think about when investing in copper stocks and analyses one cheap share to…

Read more »

Investing Articles

A cheap FTSE 100 stock that’s ready for a dividend hike in 2024

This banking giant is one of the FTSE 100's greatest dividend stocks. And at current prices, our writer Royston Wild…

Read more »

Growth Shares

Is the BP share price set to soar after Michael Burry invests in the firm?

Jon Smith takes note of a recent purchase from the famous investor behind The Big Short and explains his view…

Read more »

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

I’d focus on Kingfisher now after the Q1 report leaves the share price unmoved

With the share price near 262p, is the FTSE 100’s Kingfisher a decent investment now for dividends and business recovery?

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

£500 buys me 493 shares in this 7.4% yielding dividend stock!

The renewable energy sector remains out of favour. As a result, there are some high-yielders around, including this dividend stock.

Read more »

Road trip. Father and son travelling together by car
Investing Articles

If I’d put £10k into Tesla stock 2 years ago, here’s what I’d have now

Tesla stock has fallen in the past few years. But the valuation looks temptingly low now, as we approach a…

Read more »

Google office headquarters
Investing Articles

Up 41.5% in a year, here’s why Alphabet is one of my top stocks to buy

Our author thinks Alphabet is one of the best stocks to buy. He says its undervalued, highly profitable and has…

Read more »