Glencore shares: 1 of the best value plays in the FTSE 100

Andrew Mackie continues to believe that a pivot from coal to copper will be the catalyst that energises the Glencore share price.

| More on:
A young Asian woman holding up her index finger

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Glencore share price (LSE:GLEN) has been on a bumpy journey of late. At the end of February, it fell to a two-year low. Since then, it has bounced back strongly. It may be a volatile stock, but it remains one of my favourite picks in the FTSE 100.

2023 – a solid year

It was always going to be difficult for the business to replicate its runaway success of 2022. Extraordinary energy market dislocation, supply disruptions, Covid, and geopolitical events saw it post revenues of over $250bn.

However, despite seeing profits fall by 50%, 2023 was its second-best year in the last 10 years.

Shareholders were handsomely rewarded. Total returns amounted to $10bn. Dividends accounted for 60% of this distribution and the remainder through share buybacks.

The company has a very transparent and open dividend policy. Each year it expects to pay $1bn from its marketing business and 25% of free cash flow from its industrial division.

For FY24, this translates to a total payout of $1.6bn, equivalent to $0.13 per share. A forward dividend yield of 2.4% is disappointing; but I don’t make investment decisions based primarily on shareholder payouts.

Energy hungry world

Over the coming decade, I expect energy demand to continue to grow. Global economic growth and energy consumption are two sides of the same coin.

A growing demand for energy is coming from multiple sources. Electricity growth is one key driver.

First, there is electrification of mobility and residential heating through EVs and heat pumps. Another obvious growth area is from AI, cryptos, and data centres.

Today, trillions of dollars are being pumped into renewables like solar and wind. This is fantastic for the likes of Glencore on two fronts.

Wind turbines and solar panels require metals in huge quantities. But what a lot of people forget is that once they are built, they need to be connected to the grid.

The International Energy Agency predicts that over the next 15 years some $11trn needs to be spent on grid expansion. This is a challenge in itself.

Investment in grid infrastructure continues to lag, and that is before one even factors in the huge growth in copper supply that needs to come online to meet an expected surge in demand.

Coal risk

For many years, large shareholders and activist fund managers have pushed the company to divest itself from its coal operations.

At the end of last year, it agreed to buy out the remaining 77% of Teck Resources’ steel making coal business. The intention is to spin this operation out into a separate company, via a US listing. The purchase for $7bn has pushed up net debt considerably.

In 2023, its coal business accounted for 75% of total profits. An expected steep decline in global demand over the coming decades, could lead to a collapse in revenues.

I believe that one of the main reasons why Glencore stock consistently trades at a low valuation is because of the stigma attached to coal. Its transition to “green” metals could well lead to a significant re-rating. I first bought the stock during the Covid lows. When it dipped last month, I bought more and will do so again on any subsequent sell-off.

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.

Andrew Mackie 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.

More on Investing Articles

Union Jack flag triangular bunting hanging in a street
Investing Articles

Down 28% in a week! What’s going on with the share price of this FTSE 250 British icon?

There’s one stock in the FTSE 250 that took a bit of a battering last week. But I’m not surprised,…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

At around £28.50, Shell’s share price looks cheap to me

Shell’s share price still looks undervalued against its fossil-fuel-focused rivals to me, despite it pushing back its carbon reduction targets.

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

433 shares in this FTSE 100 dividend superstar could make me £18,803 in annual passive income!

This overlooked FTSE 100 gem has one of the best yields in the index, looks undervalued, and makes me big…

Read more »

Investing Articles

2 under-the-radar investment trusts I’d buy for a new Stocks and Shares ISA

Here are two fantastic trusts that I'd happily snap up today if I were building a Stocks and Shares ISA…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

If I’d put £1k in Games Workshop shares 5 years ago, here’s how much I’d have now!

Games Workshop shares have proved to be a stellar investment in recent years. Charlie Carman examines whether this trend can…

Read more »

White female supervisor working at an oil rig
Investing Articles

With the Middle East in crisis, will the BP share price soar?

The BP share price has leapt by a sixth, surging 16.7% since the lows of late January. Will it gush…

Read more »

Young Caucasian woman at the street withdrawing money at the ATM
Investing Articles

If I’d put £5,000 into Santander shares 1 year ago, here’s how much I’d have now

Santander shares have outperformed over the past 12 months, leaving this Fool wondering if he should add the bank stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

55% below its all-time high, this growth stock doubles up as a value investment

Oliver says Kainos Group is one of the best technology growth stocks on the British market. He says the growth…

Read more »