The FTSE 100’s Hottest Growth Stocks: Glencore PLC

Today I am outlining why Glencore (LSE: GLEN) could be considered a terrific stock for growth hunters.mtl

Earnings expected to spring higher

It is no secret that the crushing effect of macroeconomic volatility on raw materials prices, not to mention the financial implications of subsequent heavy restructuring, has caused earnings across the mining sector to shake wildly in recent times.

Indeed, taking into account the combined performance of commodities giants Glencore and Xstrata — which merged in the spring of 2013 — the new, enlarged group has seen earnings dip during three of the past five years, culminating in last year’s 25% decline.

However, City analysts believe that the worst is now behind the now-renamed Glencore, and expect the business to punch sustained growth. Indeed, expansion in the region of 12% and 37% is anticipated for 2014 and 2015 correspondingly.

These figures leave the business dealing on a P/E multiple of 15.1 times predicted earnings for this year — in line with the benchmark which represents attractive value for money — and which shuttles to just 11 for 2015.

But could macro concerns prompt downgrades?

But for many, the multitude of question marks surrounding the state of the global economy still makes the mining sector a high-risk area. Latest HSBC Chinese manufacturing purchasing managers index (PMI) numbers this week showed an unexpected uptick to 50.5 for September, even though data over the past year seems to suggest an escalating slowdown.

And in Europe, signs that activity in the industrial heartlands of Germany continues to slide — PMI slid to 50.3 this month from 51.3 in August, just above the line which separates expansion from contraction — also casts doubt over commodities demand looking ahead.

On the basis of current broker forecasts, Glencore would appear to be a top-notch share selection for those seeking hot growth stocks. Indeed, the mining group’s diversity across many commodity markets (and relatively low exposure to the iron ore sector), combined with its aggressive divestment programme, certainly boosts the company’s earnings profile.

Still, I believe that given the scale of supply/demand imbalances across many key commodity markets, Glencore remains a stock pick only for the most risk tolerant, particularly as the worldwide economic recovery still faces a multitude of roadbumps to overcome.

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Roy does not own shares in any company mentioned.