Glencore (LSE: GLEN) shares have performed well in 2022. Year to date, they’re up about 44%, making them one of the best performers in the FTSE 100 index.
Currently, I don’t own Glencore shares in my portfolio, so I have missed out on these gains. But should I buy them for 2023 and beyond? Let’s discuss.
Still cheap
Glencore shares still look quite cheap, even after the substantial share price increase this year. At present, City analysts expect the mining company to generate earnings per share of 156 US cents this year. That puts the stock on a forward-looking price-to-earnings (P/E) ratio of just 4.3, which is very low.
To put that figure in perspective, the median P/E across the FTSE 100 is about 13.5 right now. So there could still be some value on offer here.
Big dividend
Meanwhile, there’s a large dividend on offer. Currently, analysts expect Glencore to pay out 57.5 cents per share in dividends this year. That equates to a yield of about 8.7% at the current share price.
On top of this, Glencore is buying back its own shares at the moment. In its H1 results, the company announced a new $3bn buyback programme. Buybacks tend to boost earnings per share.
Looking at these numbers, Glencore shares do look tempting from a value investing perspective right now.
Commodity price uncertainty
These numbers don’t tell the full story here however. The thing to understand about mining companies such as Glencore is that they are highly cyclical. In other words, revenues and profits tend to rise and fall dramatically.
This year, Glencore’s revenues and profits have been boosted by the Russia/Ukraine war. This crisis has led to what Glencore has called an “extraordinary energy market dislocation”, sending commodity prices higher.
Commodity prices may not remain high in 2023 though. An end to the Russia/Ukraine crisis, deteriorating economic conditions globally, and weakness in China could all send prices lower.
If they did fall, Glencore’s top and bottom line would most likely take a hit. It’s worth noting here that analysts currently expect revenue to fall by around 9% next year and earnings per share to decline by about 29%.
I don’t like this kind of uncertainty as an investor. I prefer to invest in companies that have more predictable and stable revenues and earnings.
Operational risk
Another issue for me is operational setbacks, which are quite common in the mining industry. In Q3, Glencore’s operational performance was impacted by a range of events including extreme weather in Australia, industrial action at nickel assets in Canada and Norway, and the emergence of significant supply chain issues in Kazakhstan stemming from the Russia/Ukraine war.
As a result of these issues, full-year 2022 production guidance was reduced for the affected commodities.
Meanwhile, earlier this week, the company gave weaker-than-expected production guidance for 2023 due to copper production issues in the Democratic Republic of Congo. This sent the share price lower.
Should I buy?
Given the cyclical nature of Glencore shares and the risks associated with operations, I don’t see them as a good fit for my portfolio. They’re cheap but, all things considered, I think there are better stocks to buy for my portfolio today.
