This calendar year has been tough for shareholders in mining giant Anglo American (LSE: AAL), as its share price has tumbled in 2023, driven down by falling commodity prices. But at current price levels, I see this stock as a bargain buy.
Anglo American shares slump
Go back 10 months and the company’s shares were riding high. On 7 June 2022, they hit a 52-week high of 4,036p. Alas, it’s all been pretty much downhill since then.
As I write on Monday morning, this FTSE 100 stock stands at 2,552.5p. This values this Footsie heavyweight at £34.2bn. But I think this 106-year-old firm could be worth much more. Indeed, after Anglo American stock hit a 52-week low of 2,437.5p on 16 March, I added it to my watch list.
Here’s how this share has performed over seven different timescales:
| One day | 0.0% |
| Five days | -6.6% |
| One month | +0.6% |
| Year to date | -21.1% |
| Six months | -5.0% |
| One year | -20.8% |
| Five years | +51.0% |
My table shows that the Anglo American share price has lost more than a fifth of its value in 2023 and also over one year. However, this stock has leapt by more than half over the past half-decade, easily beating the FTSE 100’s 5.4% rise over five years.
What’s more, the above returns exclude cash dividends, which Anglo American pays out big-time. Indeed, it’s been one of the FTSE 100’s biggest dividend payers in recent years.
Why I see this stock as a strong buy
When I look the Anglo American share-price chart, it shows the shares have crashed 30.5% since their 2023 closing high on 18 January. To me, this suggests that while the stock is experiencing short-term weakness, it could well turn out to be a long-term winner.
What’s more, as a veteran value investor, this share’s fundamentals suggest to me that recent price falls may be overdone. Today, this Footsie firm’s stock trades on a price-to-earnings ratio of 8.6, for an earnings yield of 11.6%. That’s 1.45 times the FTSE 100’s yield of around 8%.
Furthermore, Anglo American shares offer one of the highest dividend yields in the FTSE 100. Their dividend yield of 6.4% a year is over 1.7 times the Footsie’s cash yield. Even better, this cash payout is covered 1.8 times by trailing (historic) earnings.
Now for the bad news
Anglo American digs up and sells many commodities, including copper, diamonds, iron ore, platinum group metals, manganese, and nickel. Recently, the prices of (for example) base metals have been falling due to weakening global demand.
Also, long experience has taught me that mining stocks are often among the most volatile in the London market. And their volatile earnings means that miners often cut their dividends during downturns. In fact, Anglo American did so in 2015, 2016 and 2020.
Lastly, as a mining company, Anglo American’s operations cause widescale environmental damage. This makes these shares a no-no for ESG (Environmental, Social and Governance) investors.
However, I am very bullish on the mining sector for the next five years. I already own shares in my #1 pick in this field, but would like to diversify further. Despite my concerns, I’m keen to buy Anglo American shares at current (or lower) prices. Now if only I had some spare cash to do so now!
