Why I’d buy Anglo American shares now

The Anglo American share price rose today on fantastic results. But can it keep rising?

| 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.

Anglo American (LSE: AAL) has seen its share price double over the past year. I reckon this makes it among the best performing FTSE 100 shares for this time period. But will the multi-commodity miner slow down? I doubt that. 

I think, at worst, its share price could dip for brief periods as another round of stock rotation happens. Its price-to-earnings (P/E) ratio was already somewhat high at 27 times before the results were released, which further indicates that some decline is possible. 

Incredible profit increase 

But going by its strong results, I think it is only a matter of time before the Anglo American share price can start inching up again. Its revenues are up 119% for the half year ending 30 June 2021 and its net profit is up an incredible 1,001%. Of course, the numbers look exaggeratedly big because they are being compared with last year, when there was a dip in the company’s performance. 

But even if I compare the numbers to 2019, they still look pretty damn impressive. Revenue is up over 47% from the first half of 2019 and net profit is up a whole 175%. This increase too, can be attributed to a big stroke of luck for miners. Commodity prices have been on fire in the past year, supported by government stimulus. But not all miners have been able to benefit equally. 

What is Anglo American doing right?

This suggests that Anglo American is doing something right, further building my confidence in the stock. It helps that some of its biggest income generators like the platinum group metals, copper, and iron ore saw elevated prices during this time. 

But also, that their production was not compromised because of unexpected factors like poor weather, for instance. Its platinum metals production grew, as an example, by 28% compared to last year. Diamond prices rose as well. But in this case too, the company reports a rise in consumer demand in the post-pandemic period. 

Share buyback can raise the Anglo American price

The Anglo American share price can also rise because of its stock buyback, which can push up its price in the short term. As per a Financial Times report, CEO Mark Cutifani said that the “The share buyback should tell you that we don’t think this is as good as it gets.” To me this suggests that the share price can indeed rise further. 

Risks and assessment 

At the same time, it is essential to bear in mind that the Anglo American performance is vulnerable to government actions. And if public spending is to slow down or be redirected in a manner that does not suit industrial metal miners, it may not see such good times ahead. In any case, as a cyclical stock it is tied to ups and downs in business conditions. If growth is slow, its performance can dip. 

These risks may not bear out though. I am more optimistic than not about Anglo American for now. It is a buy for me.

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

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

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

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »