One month ago, I was in despair about my Glencore (LSE: GLEN) shares. I’d bought the FTSE 100-listed global mining giant on two occasions last year, because I thought they looked too cheap to ignore. They quickly became even cheaper.
I bought the stock on 26 July at a price of 472p per share. By 1 September, the Glencore share price had fallen to 430p, so I averaged down and bought some more. Yet they continued to fall, plunging to 368p by the end of February.
Investors lost heart after the board reported a 50% drop in full-year adjusted EBITDA earnings on 21 February, from around £34bn to $17bn year-on-year. Falling coal, gas and oil prices were partly to blame, while reduced energy price volatility hit trading profits.
Missing an open goal
Glencore had suddenly turned into the worst performer in my self-invested personal pension (SIPP), down around 15%. I like buying cyclical companies on bad news, and I should have responded by loading up for the third time. Yet I didn’t.
I’d read a little bit too much about the problems affecting China, which remains by far the world’s biggest consumer of metals and minerals. My conclusion that was that its slump was likely to intensify, further hitting demand for natural resources.
Chinese share values have staged a $1.75bn rally since January’s lows. Many investors see Glencore as a play on China, and its shares have rallied hard too.
They’re up 21% in a month to trade at 447p. If I’d invested £10,000 at the end of February, I’d have £12,100 today. That’s a lightning-fast gain of £2,100. Over 12 months, the stock is down 5%.
Luckily, Glencore isn’t the only FTSE share that’s been doing well lately. I can console myself with contrarian calls I did get right. These include FTSE 250 insurer Just Group, up 28% in the last month, outsourcer Costain (up 15%) and FTSE 100 retailer JD Sports (up 14%).
Let it go
My missed opportunity still grates, but that’s life. The only thing that really matters is whether I should buy Glencore shares today.
Beijing has cheered investors by showing its ready to inject more stimulus into the economy, setting itself an ambitious annual growth target of around 5% a year. This has boosted the outlook for Glencore and other big FTSE 100 miners. Anglo American and Antofagasta are both up more than 15% over the last month.
Glencore got a further boost after RBC Capital Markets praised its free cashflow generation potential and predicted the shares would outperform.
There are risks. The Chinese economy is living on stimulus, and still has a heap of unresolved economic and political problems. Last year, Glencore’s net debt rocketed from just $75m to almost $5bn. I’ll keep a close eye on that.
Also, the share price isn’t as cheap as it was. I bought at a price-to-earnings ratio of around four or five. Today, the forecast P/E is 13.6 times, while the forecast yield is a lowly 2.4% for 2024.
I wish I’d topped up my holding in Glencore one month ago, but given those numbers, I’m not in a huge rush to buy it today. Instead, I’ll go hunting for other FTSE 100 bargains, and this time I won’t miss.
