I’m talking about the FTSE 100 mining giant Glencore (LSE: GLEN). Like other stocks, it has seen quite the tumble so far in 2020. At the time of writing, it’s down 40% from the start of the year. This is far more than the 23% decline for the FTSE 100 index. But there’s some good news. It’s been recovering in April. It’s up 27% from its lowest last month, which also coincides with the day the FTSE 100 touched its lowest.
Limited dent to Glencore’s operations
I reckon that GLEN’s upward streak can continue. Here’s why.
While many other FTSE 100 companies have issued dire warnings about disruptions to their business as a result of the Covid-19 pandemic, Glencore is relatively confident. In its latest update a couple of weeks ago, it said “…majority of our operations have not been materially impacted..” It releases more details at the end of the month, which will give us more insight. I am somewhat optimistic given its updates so far.
FTSE 100 investors shrug off dividend cuts
It has shown pre-emptive caution as well. It deferred future dividend payments citing “risk of material production disruption due to COVID-19”. Cutting dividends is a double-edged sword. While it can preserve GLEN’s long-term financial health, which impacts its share price, it’s also a loss for investors, who may have invested in it purely for passive income. So far though, its heartening that the drop in share price the day after the announcement was short-lived. It has gained 20% since.
This means that FTSE 100 investors aren’t as concerned with dividend income as might have been anticipated. Share prices for FTSE 100 shares have been rising pretty much across the board despite dividend cuts by many companies. But GLEN stands out. Its share price started declining over the last two years, as authorities started a probe into its activities for unethical practices. It follows that it’s been a better income investment in the recent past than a growth one. Investors have maintained their faith in the stock nevertheless despite the dividend suspension.
Bracing for slowdown
The probe’s still underway, and its outcome could be siginificant either way for Glencore. However, it’s hard to know when it will conclude as well as the extent of its impact. In the meantime, I’d much rather focus on other factors impacting its share price. For instance, I think it’s important to brace for the slowdown ahead. Glencore’s focus on industrial metals, particularly copper, makes it vulnerable to downturns. Copper’s prices have expectedly fallen sharply since the beginning of the year. It’s now trading at four-year lows. However, when the cycle turns, so will the prices.
When investing in mining stocks, or indeed any cyclical stocks for that matter, periodic downturns are to be expected. And Glencore is no exception. But over time, these stocks can offer appreciable capital gains. I’ve already invested in GLEN and think it’s still a good buy, especially after showing robust gains despite all that’s weighing against it.
