The Glencore (LSE: GLEN) share price has lost about 20% so far in 2023.
It seems like only yesterday that commodities stocks were flying, and leading the FTSE 100 dividend table. Then Rio Tinto led the fall, by slashing its sky-high dividends.
Yet share prices have actually held up quite well when we look back a bit more. Glencore shares are still up 22% over five years, although they’re down this year.
It’s cyclical
Valuing shares in this sector can be hard. One problem is that it’s cyclical.
Because of that, mining stocks can be a big draw for those trying to time the market. If we want to get in and out and make quick profits, shares that move up and down with regularity can help.
The problem is that the regularity is not, well, all that regular. And that makes it hard to spot the highs and lows.
In fact, despite what the market timers seem to think, I’d say it’s no easier to get it right with mining stocks than any others. And I often see short-term investors getting it wrong.
If only people could forget all the cyclical stuff, and just buy if they think a stock is good value to hold for at least 10 years. Well, that might help bring an end to the cycles.
Why buy Glencore?
I rate Glencore shares a buy, largely because the fundamental valuation looks good.
They’re on a forecast price-to-earnings (P/E) ratio of only a bit over seven. Now, analysts expect earnings to drop in the next two years. And that’s probably what’s triggered the down trend so far in 2023.
But such a low valuation gives us what I think is a good safety margin. And that’s taking into account the fact that cyclical stocks often trade on long-term average P/Es below the FTSE 100 as a whole.
I also reckon Glencore has a key advantage in the sector.
Not just a miner
Glencore isn’t just a miner. In fact, it’s one of the world’s largest commodities traders. It deals in metals and minerals, sure. But it’s also in the energy market, and agricultural goods.
And being in the trading game, it’s not just actual prices that count. If copper, say, is cheap now, that could hit the profits of copper miners.
But as long as traders can keep their margins going, they should face less price risk.
So in terms of commodities markets, Glencore looks like a long-term buy to me.
Uncertainties
The firm does have its own uncertainties. It has a fair bit of exposure to coal, which is increasingly going out of fashion as an energy source.
And then there’s confusion about plans to take over Teck Resources’ coal business and spin it off on its own.
So yes, we could be in for further price weakness in the coming months. But when the outlook clears, I think long-term investors could see a nice buy here.
