There are many things I like about FTSE 100 miner and metals trader Glencore (LSE:GLEN) as a long-term investment.
Buying quality shares at relatively cheap prices can be a wonderful way to create long-term wealth. Some of the world’s richest investors — like Warren Buffett — rely on this strategy every day.
As CEO of Berkshire Hathaway, Buffett built his vast £95bn fortune from a broad portfolio of value stocks.
As the billionaire says: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
And as a strategy, it means that when share prices are in the gutter, I can swoop in and pick up shares on the cheap.
There’s no doubt in my mind this is the case today. Glencore’s P/E ratio is 6.3, less than half the FTSE 100 average.
8% dividend yields
I look to industry experts to see how Glencore’s key commodities like copper could perform in future.
One of the world’s richest asset managers, FTSE 100 company Schroders, says that industrial demand for copper will rocket between now and 2030.
The base metal is used in multiple parts of electric vehicles, including batteries and charging stations. Copper is one of the most electrically-conductive metals on earth, and so is highly prized in building renewable infrastructure.
And instead of picking a single copper miner, I could instead buy into this trend at lower risk with a FTSE 100 giant like Glencore.
Steady on
It’s worth noting that in the short term, I could see the value of my holdings fall if the world sinks into an economic depression.
One long-term concern to be aware of is that metals and mining can be unpredictable businesses. If demand for electric vehicles and renewable energy falls in future, then the share price could take a dive from which it does not recover.
But stock markets, along with prices for the metals that Glencore buys and sells, tend to move in cycles.
Because my strategy is to buy cheap and hold for the long term, I can pick and choose the cheapest buy-in points for FTSE 100 stocks.
What happens next
The Glencore share price is 26% cheaper than it was at the start of 2023. Global economic weakness has caused traders to mark the shares down from a high of 575p to 425p today.
The thing to remember is that economic weakness (just like economic strength) is never a permanent situation.
We need only look back to 2015, when commodity prices fell to a multi-year low. Glencore shares dropped from 311p in May that year to just 80p six months later. Seven months later, by July 2016, Glencore shares had more than doubled to 160p.
Another seven months later, by February 2017, the shares had doubled again to 320p!
When the global economy does return to strength — as it did after 2015 — I see the Glencore share price easily doubling. That’s why economists sometimes say: ‘History never repeats, but it often rhymes.’
Glencore now pays a 8.2% dividend yield. This is almost 400% higher than the FTSE 100 average over the last 12 months.
So I’m going to follow the advice I wish I learned 20 years ago: ignore the day-to-day news and zoom out for long-term success.
