Electric vehicles (EV) are becoming more and more popular. Even though the term is fairly narrow by definition, ‘EV stocks’ is a broader phrase used to describe any firm directly or indirectly associated with components that go into making an EV. As such, some aren’t completely obvious at first glance. Here’s a top EV stock in the FTSE 100 that I think has gone under the radar.
A key cog in the EV chain
The company I’m referring to is Glencore (LSE:GLEN). The global commodity trader is best known for the large amounts of oil and gas produced and marketed. However, it’s also involved in various other metals and minerals that are vital for the success of EVs going forward.
Lithium is one of the key inputs for the car batteries. Yet cobalt, copper and nickel are also needed. Glencore happens to be one of the largest producers of the latter three.
For example, in April the company announced that it would be supplying cobalt that it mines to General Motors for use in lithium battery cathodes. Cobalt is added to the battery to increase longevity and energy use.
Another case in point is the higher amount of copper needed for EVs. In a conventional car, between 18-49 pounds of copper is needed. In a hybrid car, this jumps to 85 pounds, with a battery electric vehicle needing 183 pounds!
Clearly, Glencore is well-positioned in the market to be able to supply and profit from the demand that EV manufacturers will see going forward. A continued uplift in consumer demand should naturally filter down to a producer like Glencore.
Value in Glencore
I’ve established that Glencore is a valid EV stock and could perform well if this trend continues for years to come. But does it make sense for me to buy into this FTSE 100 business at the moment?
One concern I always have with commodity stocks is the fact that the share price is linked not just to company performance. It’s heavily weighted towards the movements in core commodity prices. What if the oil price dropped 50% tomorrow? The Glencore share price is probably going to take a similar short-term hit, regardless of what this means for the business fundamentally.
The share price is already up 53% over the past year, and a whopping 191% over two years. Yet the price-to-earnings ratio sits at 11.4, which isn’t a high figure by any stretch. So I wouldn’t say the business is overvalued.
Further, even if it takes a while for earnings to be lifted by higher demand, I’m able to pick up a generous dividend. The current yield is 4.3%, with a latest $1.45bn special distribution due to strong interim profits.
From my perspective, I don’t think the potential for Glencore from the EV sector is being spoken about enough. That’s why I’m considering buying some stock now, to hold for the long term.
