As the economy starts to recover from the coronavirus pandemic, I’ve been looking for the best UK shares to buy now. I’ve been focusing on companies with a solid connection to the UK and the global economy. However, these tend to be more cyclical businesses, which might not be suitable for all investors.
Nevertheless, I’m comfortable with the level of risk involved. That’s why I believe Glencore (LSE: GLEN) is one of the best UK shares to buy now, as I think it looks cheap compared to its potential.
Cheap blue-chip
Glencore began life as a trading business. Commodity trading requires a lot of money and resources. Shipping commodities around the world can be profitable, but only in large volumes.
Over the past few decades, Glencore has become the largest commodity trader globally, a quality that’s rare among UK shares. As it’s grown, it’s achieved economies of scale and built connections to help reinforce its position in the market.
The company has also started buying up production facilities and mines. In 2013, the group bought Xstrata using its profits from the trading business to snap up the mining giant at a discounted price.
Since then, the group has continued to invest in its production facilities. Today, the company produces 60 different commodities from 35 countries around the world. The firm is also one of the world’s largest producers and marketers (traders) of copper. In 2020, it produced 1.26mt and sold 3.4mt through its marketing business.
I think this one of the best UK shares to buy now due to Glencore’s position in the copper market. The demand for copper around the world has exploded. Over the past few decades, demand has also increased as the electronics industry has grown. The renewable energy revolution may ignite another stage of growth.
A share to buy today?
According to Glencore’s chief executive, Ivan Glasenberg, the mining industry will need to produce an extra 1mt of copper every year to meet governments’ goals of reaching carbon neutrality by the middle of this century.
To convince miners it worth investing to meet this requirement, Glencore’s CEO reckons the price of copper will have to hit $15,000 a tonne. It’s currently trading around $11,000. This time last year, it was below $5,000.
This suggests Glencore’s related profits and sales could surge over the next few years. The company could benefit not only from higher copper prices but also from increased trading of the commodity. On that basis, I think the stock currently looks cheap.
That said, while I believe this is one of the best UK shares to buy now, I think the investment is riskier than most. Commodity prices can fall as well as rise. Only a couple of years ago, Glencore’s very future was called into question. When commodity prices collapsed, the company was left with a mountain of debt. It had to take drastic action to reassure investors and bolster its balance sheet.
However, despite the risks of investing in the commodity industry, I’d invest £3,000 in this company today. As the economy continues to recover from the pandemic and investments in renewable energy increase, I reckon Glencore could be one of the primary beneficiaries.
