Should I buy Glencore shares after a 14% fall?

Glencore shares have fallen this year and currently look quite cheap. Are they worth buying? Edward Sheldon provides his take.

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Glencore (LSE: GLEN) shares have underperformed in 2023. Year to date, they’re down about 14%.

Is it worth snapping up a few shares in the FTSE 100 commodities giant after this fall? Let’s discuss.

Long-term growth story

When I look at Glencore from an investment perspective, there are two things that really appeal to me.

One is the fact that the company is one of the largest producers of copper in the world.

Looking ahead, demand for copper is projected to rise significantly on the back of growth of the renewable energy industry (wind turbines and solar panels use a lot of copper) and the electric vehicle (EV) market.

According to McKinsey, global electrification is expected to increase annual copper demand to 36.6m tonnes by 2031, compared to roughly 25m tonnes today.

Supply can’t suddenly be ramped up though. That’s because it can take up to 12 years to get a new copper mine up and running.

So there’s a long-term growth story here. And that’s what I want as an investor.

Big dividends on offer

The other thing that stands out to me with Glencore is that shareholder returns are attractive.

For 2023, analysts expect total dividends of 43.1 cents (this includes a special cash distribution of eight cents announced in the company’s H1 results). That puts the yield at around 7.6%.

On top of dividends, the company is also buying back shares, giving investors a bigger piece of the pie.

Low valuation

As for the stock’s valuation, it appears to be quite low. Currently, Glencore has a forward-looking price-to-earnings (P/E) ratio of around 9.3.

That’s significantly lower than the average FTSE 100 P/E ratio.

Risks

We need to weigh up the attractions of the stock with the risks however, and there are a few risks to be aware of here.

Firstly, mining is a highly cyclical industry, meaning it has its ups and downs.

This is illustrated by the fact that for the first half of the year, Glencore’s earnings per share fell 61% year on year to $0.36.

So investors can’t really bank on high dividends here. With a cyclical company, there’s always the risk of a big cut.

Secondly, dozens of well-known asset managers are currently seeking damages from Glencore, claiming that they suffered losses as a result of “untrue statements” and omissions in the company’s 2011 prospectus for its listing on the London Stock Exchange. This is an issue to keep an eye on.

Finally, it’s worth noting that Glencore shares are currently trading below their 200-day moving average. So, technically, they’re in a long-term downtrend. And these can last longer than expected.

So should I buy?

Weighing everything up, I won’t be buying Glencore shares for my own portfolio. To my mind, there’s just a bit too much uncertainty.

All things considered, I think there are safer dividend stocks to buy today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has positions in London Stock Exchange Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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