Market volatility isn’t always a bad thing. It can present opportunities to buy cheaper FTSE 100 stocks with a view to them eventually recovering.
One stock that has been falling recently and caught my attention is Glencore (LSE: GLEN).
Let’s dig deeper to see if there’s an opportunity for me to buy some shares.
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Downward spiral
I understand that mining and commodities is an extremely cyclical sector. However, it can be lucrative, especially for the bigger players, and Glencore falls into this bracket.
Nevertheless, the shares have been falling for some time now. Over a 12-month period, the shares are down 13% from 434p at this point last year, to current levels of 374p. Looking back further, over a two-year period, they’re down 23% from 492p to current levels.
A big reason for the recent drop has been massive turbulence and volatility. A few key ingredients of this have been fears of a recession in the US, and economic and political trouble in China.
As world superpowers that help dictate the global economy, these countries battling issues can have a knock-on effect for markets, businesses, and whole sectors. Commodities is certainly one such sector.
Glencore could continue to experience mixed fortunes when it comes to investor sentiment here. Demand for commodities in China and other key markets can fall during these volatile times as infrastructure projects are often put on the back burner. I’ll watch these risks closely moving forward.
My investment case
Despite obvious challenges, Glencore reported a mixed set of results for the first half of the year recently. There were some positives, and a few negatives.
The key takeaways for me were that revenue rose by 9% to $117.1bn compared to the same period last year. Plus, the firm managed to cut £1.3bn of debt from its balance sheet, and cash flow generation rose above the $6bn mark.
From a negative view, Glencore posted a loss of $233m, down from $4.6bn of profit the year prior. Plus, profit levels shrank by over 30%.
So what’s all this volatility, trading, and outlook done for Glencore shares? They now trade on an enticing price-to-earnings ratio of just over 10. Not the cheapest, but certainly cheaper than in recent years, offering investors like me an attractive entry point.
My verdict
From a future perspective, there’s no denying Glencore’s massive presence, as well as real world applications for its commodities, could send the firm’s earnings and shares to new heights. The green revolution, infrastructure building in the US and China, and the rising adoption of electric vehicles (EVs) are a few examples of how Glencore could cash in.
However, I’m a bit concerned about Glencore’s current predicament, and the recent performance update put me off. I reckon there’s better value elsewhere, and I’ll keep a close eye on the shares rather than buying any currently.
There may be investors out there with a stronger stomach than me, able to withstand the volatility and ups and downs. However, I’d prefer a smoother ride and will look for value stocks elsewhere across the FTSE index.
