Should I buy Glencore shares for 2024?

Glencore shares have taken a big hit in 2023 on the back of economic weakness. Are they worth buying for 2024? Edward Sheldon provides his take.

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Glencore (LSE: GLEN) shares haven’t performed well in 2023. Year to date, they’re down almost 20%, which is disappointing given that the FTSE 100 index has been flat.

Should I buy the shares for 2024 and beyond? Let’s discuss.

A play on renewable energy

There are several things I like about Glencore from an investment perspective.

For starters, the company offers exposure to the renewable energy theme.

Not only is it one of the world’s largest producers of copper but it also has exposure to zinc and nickel, both of which are used in wind energy turbines, solar panels, batteries, and electric vehicles (EVs). According to the Nickel Institute, about 2,000kg of nickel is required per wind turbine.

So, there’s potentially a long-term growth story here. Realistically, the renewable energy transition is just getting started.

Passive income

Second, the company tends to pay decent dividends.

For 2022, it paid 44 cents per share to investors. At today’s share price and exchange rate, that equates to a yield of around 7.5%.

A complex company

On the downside, Glencore is a complex business. This is not a standard mining company. That’s because it also engages in commodity trading. So, it’s essentially half miner, half investment bank.

Legendary fund manager Peter Lynch used to say that if you couldn’t explain how a company works to a 10-year old in two minutes, don’t own it. Explaining this business to a child in two minutes could be challenging.

Earnings and share price volatility

Another issue for me is that it’s hard to know if the company is cheap or not.

Currently, Glencore has a price-to-earnings (P/E) ratio of about 10.

But the thing is, with mining companies, the P/E ratio doesn’t really mean much. That’s because the earnings or ‘E’ part of the formula can fluctuate widely from year to year.

Share prices and dividend payments can also fluctuate a lot with these companies.

Glencore’s ‘beta’ (an indicator of how volatile a stock is compared to the market) is about two. That means that it’s about twice as volatile as the UK stock market as a whole.

Lower dividend forecast

As for dividends, it’s worth noting that for 2024, City analysts forecast a dividend payment of 25.6 cents per share.

That’s about 42% lower than the payout in 2022 and equates to a yield of around 4.4% today.

I’d like to see a higher yield to compensate for the share price volatility here.

Guesswork needed

Finally, while there appears to be a long-term growth story, it’s hard to know what is going to happen in the short term.

If China’s economy rebounds in 2024, commodities – and Glencore’s share price – could get a boost.

However, if the global economy takes a turn for the worse, both could fall.

So, there’s a lot of guesswork required here. And that’s not ideal.

My view

Weighing everything up, I won’t be buying Glencore shares for my portfolio.

For me, this business is just too unpredictable.

All things considered, I think there are better stocks to buy for 2024 and beyond.

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 no position in any of the shares mentioned. 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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