MENU

Should You Buy Glencore PLC Or Anglo American plc?

opencast.mining

2014 has been a super year for investors in Glencore (LSE: GLEN) and Anglo American (LSE: AAL). That’s because the two mining stocks have delivered strong gains during the course of the year, with Glencore being up 19% and Anglo American being up 25% year to date. Both of these returns are far superior to the disappointing 2% fall of the FTSE 100 over the same time period. However, looking ahead, which of the two is the better buy?

Growth Potential

While 2014 is expected to turn out to be a tough year for Anglo American, Glencore is forecast to deliver strong earnings growth. Indeed, Anglo American’s bottom line is set to fall by around 14% this year, as it struggles with demand that is lower than the levels it had hoped for. This will be the third straight year of earnings per share (EPS) falls for Anglo American and shows that, while the sector as a whole has plenty to be optimistic about, the short term looks set to offer continued disappointment. Meanwhile, Glencore’s EPS growth forecasts of 9% in the current year are impressive and show that the company can deliver during tough periods.

Of course, the market seems to be looking further out than the current year, since the share prices of both companies have risen strongly in recent months. Indeed, Anglo American is forecast to bounce back next year with EPS growth of 20%, while Glencore’s bottom line is all set to grow by nearly twice that at 38%. Clearly, both figures are impressive, but Glencore’s is more attractive and, when combined with growth in the current year, means that it seems to have better prospects than Anglo American.

Valuations

As ever, strong growth prospects must be paid for. Anglo American’s price to earnings (P/E) ratio is currently 15, which is considerably higher than the FTSE 100’s P/E of 13.2. However, Glencore’s better growth prospects mean that it commands an even higher P/E of 17.4 which, as first glance, may lead investors to think that its shares are overpriced right now.

However, when the company’s growth prospects are taken into account, Glencore and Anglo American both seem to offer growth at a reasonable price. That’s because Anglo American trades on a price to earnings growth (PEG) ratio of 0.8, while Glencore’s PEG is even more attractive at just 0.5. As a result, both companies are appealing, with Glencore being the better value of the two.

Looking Ahead

Clearly, the mining sector is unlikely to experience a smooth ride and earnings forecasts can change quickly as a result. However, with growth such an important consideration for the sector after a number of challenging years, Glencore’s better growth prospects (as well as its better value when those prospects are taken into account) mean that it seems to be a better buy than Anglo American. While both stocks have bright futures, Glencore seems to have the slightly brighter one right now.

Of course, Glencore and Xstrata aren't the only companies with appealing growth prospects. In fact, neither have been awarded the accolade of The Motley Fool's Top Growth Share Of 2014.

The winner is a company that you may have previously come across and overlooked, or it could be a new idea you haven't even heard of. Either way, it's well worth finding out more, since we think it could make a positive contribution to your portfolio and, as such, could mean that 2014 and beyond are even more prosperous years for your investments.

Click here to find out the winner - it's completely free and without any further obligation to do so.

Peter Stephens has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.