Over the last six months, Glencore (LSE: GLEN) shares have been among the very worst performers on the FTSE 100 falling 17.95%. Only Prudential, Croda, Vodafone, Fresnillo and Anglo American have done worse.
This is a rare slip because they’re up 12.57% over one year and 158.31% over three years. A buying opportunity like this doesn’t pop up every day.
Anglo-Swiss mining company Glencore operates in one of the most cyclical sectors of all, commodities. Therefore it’s best to buy the stock when it’s down rather than up. That’s the situation today.
Glencore isn’t just cheap. It’s dirt cheap, trading at just 4.3 times earnings. If interest rates peak and markets rally, I could face a long wait for another opportunity like this.
Ups and downs
Naturally, the FTSE 100 company faces challenges. Investors hoped for big things when China reopened, but after a promising first quarter, its economy edged up just 0.8% in Q2. Glencore sold off with the rest of the commodities sector. Anglo American was worst hit. It’s down 33.01% in six months.
China has since published June retail sales and they were also disappointing. Economists are calling for yet more stimulus but we have to face facts. The Chinese growth story isn’t what it was, and that will hurt commodity stocks, including Glencore. If all was going swimmingly, it wouldn’t be trading at today’s rock-bottom valuation.
China isn’t the only thing on investors’ minds. After pleading guilty to bribery charges Glencore is facing class-action-style lawsuits related to investor losses in 2011 and 2013 from a string of investment and pension funds. This will no doubt drag on, and could cost the company a pretty penny. I’m hoping this risk is reflected in today’s Glencore share price.
Happily, it doesn’t purely rely on commodity sales to make money. It also has a lucrative commodities trading operation, something most rivals lack. This offers a degree of diversification.
I got my timing wrong
Last week, we saw signs of how Glencore could perform when the outlook brightens. I actually intended to buy the stock on Thursday, but felt I’d missed my chance after logging on to my trading platform to find it was already up 3%. It closed the day 4.2% higher.
I got over my frustration after a quiet Friday. Now I’m ready to buy it ahead of the next share price rebound, so I can join in the fun whenever it comes.
This stock isn’t just about growth. It’s a terrific income stock, too, paying a record $5.6bn in dividends last year (with a $1.5bn buy back on top). Glencore is forecast to yield 7.58% this year and 6.78% next. Imagine that with some share price growth attached.
Even if the share price disappoints, as it might, it wouldn’t be the end of the world. Provided the dividends carry on flowing, by reinvesting them I would pick more pick up more Glencore stock at the lower price.
Dividends are never guaranteed, of course. Glencore didn’t pay any in 2019. But since I aim to hold the stock for at least the next decade, and ideally longer, I can endure the odd disappointment. Today’s low, low price is too good to miss. I’m going in soon.
