There was an element of predictability to this year’s stock market performance. The most sought-after stocks during the pandemic saw a waning of investor interest. These included FTSE 100 miners, whose prospects did not look quite as bright as they did in 2020 as the Chinese government decided to taper its fiscal stimulus.
Glencore is a surprise gainer
As a result, stocks like Anglo American, Evraz and Rio Tinto have all come-off from the highs seen earlier in the year. But one mining stock has defied this trend. I am talking about the Swiss multi-commodity miner and marketer Glencore (LSE: GLEN). Unlike the others, it touched multi-year highs in 2021 and is still trading close to those levels. It is now at almost 60% above its pre-pandemic highs, completely breaking away in performance from the the rest of the mining pack.
To me, this is surprising in the best possible way. I had bought Glencore stock a while ago, and for months its stock price performance was somewhat underwhelming. But since the last year or so, it has shown an impressive performance, more than doubling from its early November 2020 levels. And this is when its dividend yield is nowhere in comparison to the rest. Evraz and Rio Tinto have the highest yields among FTSE 100 stocks today, both comfortably in double-digits. By contrast, Glencore’s yield is a small 1.2%. This is way lower than even the average FTSE 100 yield of 3.5%.
What makes the FTSE 100 stock tick?
So what is making the stock tick? And more importantly, can it continue to rise further?
Its results for the first half of 2021 are encouraging. The company swung back into net profits after reporting a loss for the same half-year in 2020. It showed a 32% increase in revenue as well. I am not sure if it can continue to improve upon this performance though. It has mentioned support from the fiscal stimuli and economic recovery that sent commodity prices soaring in its last results statement, in helping its financial performance. But since then, the stimuli is on the path to being withdrawn. And industrial metal price forecasts have been reduced for 2022. Moreover, economic recovery looks relatively uncertain now that Covid-19 could send us back into lockdown again.
At the same time, the Glencore share price is pretty damn steep in relative terms. It has a price-to-earnings ratio of around 34 times, which is significantly higher than that for other FTSE 100 miners, which are trading at sub-10 times multiples.
What I’d do now
If recovery picks up again and the pandemic recedes, I reckon there is still some upside to the stock. But I am not convinced if this is the best stock to buy at this point in the cycle. In fact, I think I am prepared to sell my current holdings of the stock now. At best, I could hold it until the first quarter of 2022, just to see how things develop. But maybe not even that.
