Glencore (LSE: GLEN) shares have been very popular with investors recently. Last week, the FTSE 100 miner was the most purchased UK share on Hargreaves Lansdown’s investment platform by value.
Glencore shares accounted for 3.17% of the total value of buy orders placed through Hargreaves Lansdown.
Should I join the rush and buy Glencore for my own portfolio? Or am I better off giving the mining stock a miss as the global economy cools?
A dirt-cheap UK share
As a value investor, I can see why Glencore shares are so appealing right now. The business offers terrific bang for an investor’s buck in terms of both earnings growth and income.
First off, City analysts think the business will generate earnings per share (EPS) of 129p per share in 2022. This leaves Glencore’s share price at 489p, with a forward price-to-earnings (P/E) ratio of just 3.9 times.
To give some perspective, FTSE 100 miner Rio Tinto trades on a higher (although still modest) ratio of 5.8 times. And the FTSE index average sits at a comparatively enormous 14.4 times.
And, as I say, Glencore shares also provide a lot to excite income investors. Today, the company’s dividend yield for 2022 sits at an enormous 9.7%. This is far ahead of the Footsie 3.9% average and not far off Rio Tinto’s 10.7%.
The risks
So why is Glencore’s share price so cheap? Well, mining company profits are highly sensitive to broader economic conditions. Therefore, UK investors remain highly worried about future commodities demand as the world flirts with recession.
Last week, the World Bank warned of rising recession risks in 2023 as central banks hike rates. It added that the global economy is in its steepest slowdown following a post-recession recovery since 1970.
Huge potential
But it’s my opinion that the dire economic backdrop is more than baked into Glencore’s rock-bottom P/E ratio. It’s why I’m thinking of buying it today, and why I also invested in Rio Tinto back in June.
I take a long-term view when it comes to buying shares. And I believe Glencore’s share price could soar from current levels as commodities demand shoots through the roof.
This will be mainly on the back of energy transition, though factors like rapid urbanisation in emerging markets and soaring consumer electronics demand will also help.
Take copper, for example, a material which Glencore is a major producer of. Analysts at S&P Global think demand for refined metal “will nearly double by 2035 and continue to grow thereafter” as off-take from electric vehicle, power infrastructure and renewable generation companies explodes.
Glencore both produces and trades a variety of other commodities that will be essential for the energy revolution too. This wide exposure provides me as an investor with added peace of mind. Profits at the firm aren’t dependent upon strong supply-and-demand dynamics in one or two markets.
The bottom line
I think there’s a lot to like about commodities giant Glencore. And at current prices I think it’s one of the best FTSE 100 bargains out there for me.
