The performance of Glencore (LSE: GLEN) shares and fellow FTSE 100 mining stock Fresnillo (LSE: FRES) couldn’t be more different.
Trading and commodity giant Glencore has had a tough year, its shares dropping almost 20%. That would have reduced £10,000 to roughly £8,000. By contrast, Fresnillo has rocketed an incredible 287% over the same period, turning £10,000 into £38,700. These figures ignore dividends.
The gap is staggering. Yet over five years, they’re both up around 70%. That shows how cyclical this sector is. Glencore and Fresnillo are just at different points in the cycle.
FTSE 100 cyclical stocks
Glencore produces a range of metals and minerals, including copper, nickel, zinc, cobalt, and coal. Prices have swung as the Chinese growth monster slows, while the US and Europe struggle for momentum. Fresnillo mainly mines gold and silver, and both metals have surged as investors seek safe havens from geopolitical tensions, inflation, and tariffs.
We live in uncertain times, both economically and politically. That’s hurting Glencore, while boosting Fresnillo. Recent results underline the contrast.
On 6 August, Glencore’s half-year numbers showing adjusted core earnings down 14% to $5.4bn, with output falling sharply. Management called the performance “solid”. I call it disappointing.
By contrast, Fresnillo’s interim results on 5 August dazzled. Net profits soared almost 300% to $467.6m. The dividend was tripled from 6.4 cents to 20.8 cents. Management credited strong gold output, operational discipline, and tight cost control.
Unsurprisingly, Fresnillo’s valuation is sky-high, with a trailing price-to-earnings ratio of about 85, though the forward P/E drops to around 24. Glencore looks far cheaper, with a forward P/E of about 15. That reflects its recent poor showing.
My portfolio dilemma
I bought Glencore for in my Self-Invested Personal Pension a couple of years ago. Today, I’m sitting on a 30% loss. However, the shares have crept up 7% over the last month and I’m tempted to average down in case this is the start of something. By contrast, my suspicion is that Fresnillo is nearing the end of its strong run.
So what do the experts say? Consensus one-year forecasts suggest Glencore could hit 365.6p, a rise of almost 14.9% from today. Throw in the forecast 2.4% yield and the total return would hit 17.2% (remember, these are just forecasts). That would turn £10,000 into £11,720.
Out of 16 analysts, 13 call Glencore a Strong Buy, three more say Buy, and three say Hold. None suggest selling.
Lofty expectations
Forecasts suggest the Fresnillo share price could slip to 1,594p in 12 months, a 32.5% drop. I’m wary of these forecasts, as many may have been made before the recent surge. The forecast 2.5% yield would trim that loss to 30%, but would still shrink £10,000 to £7,000. If those forecasts are true.
I’m wary of chasing red-hot momentum stocks higher, as investors may already have banked the biggest gains. Still, others might consider buying Fresnillo if they believe gold and silver have further to run in today’s volatile climate. But they must accept the potential for short-term volatility.
As a contrarian, I’m sorely tempted to average down on Glencore in the hope it can make up lost ground now. But I accept that this is risky, too.
