I thought Glencore (LSE: GLEN) shares looked like a bargain back in 2023, so I bought some that July and topped them up in September, thinking I was getting good value. Instead, I caught a falling knife.
Over the past 12 months, Glencore’s share price has plunged 47.5%, from 501p to 263p. That would have turned a £10,000 investment into around £5,250. A couple of dividend payments ease the pain slightly, but not by much.
Small dividends, big losses
A year ago, that £10,000 would have bought 1,996 shares. After reinvesting last September’s dividend of 4.94p per share, that would have added another 25 shares, lifting the total to 2,021.
The next Glencore dividend, due on 4 June, is set at 3.765p, which should be worth about £76. If reinvested that lifts the total value to around £5,425. Still grim reading.
Today, the dividend yield sits at 2.85%. Forecasts suggest that could climb to 3.5% this year, with cover of 1.5 times. But that alone doesn’t make up for the massive share price drop.
While the FTSE 100 has risen 4.6% since the start of the year, Glencore’s gone the other way, sinking 27.5%. Operating margins are scraping the floor, currently at zero, and even next year’s forecasts only lift them to 2.9%. Return on capital employed is also meagre at just 1.6%.
The FTSE 100 group’s first-quarter results, released on 30 April, offered little to alleviate the gloom.
Copper-bottomed struggler
Copper production fell 30% year-on-year to 167,900 tonnes. Management blamed lower mining rates and weaker grades at major sites in Chile and the DRC. Nickel output also fell sharply, down 21% to 18,800 tonnes.
On the brighter side, steelmaking coal surged, thanks to the Elk Valley Resources acquisition, while cobalt production jumped 44% to 9,500 tonnes. These gains though, weren’t enough to revive the moribund stock.
CEO Gary Nagle blamed global trade uncertainty, tariffs and economic softness as ongoing concerns. They still are, and I can’t see that changing for some while. Nagle also noted that volatile conditions could eventually create marketing opportunities. That hasn’t happened yet.
Outlook may be brighter
There was a time when the commodity sector could rely on China’s roaring growth and insatiable demand for raw materials. Those days are over. China now faces major structural problems, from a property crisis to demographic decline, and is locked in a trade war with the US.
The global picture doesn’t offer much either. Europe’s economy’s stagnant, and the US could still tip into recession.
I may be glum about Glencore, but analysts are taking a very different view. The 16 following this stock have produced median 12-month share price forecast of just over 384p. That’s an increase of roughly 46% from today. If that happens, I’d wipe out my losses. But that’s a big ‘if’.
Commodity stocks are notoriously cyclical. When they fall, they often fall hard, but they don’t stay down forever.
I won’t be buying more. I already hold a sizeable chunk, and simply staying invested feels brave enough. But for contrarian investors willing to take a risk, this might be a moment to consider buying Glencore shares. The key word there is ‘might’.
