Why I’d Buy Greggs plc (+15%) And Sell Glencore plc (-2%)

As we say goodbye to February and welcome March there’s still no let-up with my inbox filling up every day with interim or preliminary results from companies big and small.

As is the case with most investors, it’s pretty much impossible to follow the trials and tribulations of all the constituents listed on the stock market. However, I find a watch list of shares can help me to keep my eye on companies that I like the look of, but need to do more work before hitting the buy button, or companies that I wouldn’t buy yet as I feel that the time isn’t right, or we’re currently in the wrong part of the cycle.

Mixed fortunes

Two of the shares currently on my watch list are under-pressure Switzerland-based natural resource company Glencore (LSE: GLEN) and Greggs (LSE: GRG), the UK-based bakery and food-to-go retailer.

As can be seen from the chart below, there has been a clear divergence of the share prices as Greggs has outperformed the market while Glencore has been one of the worst places for your hard-earned cash over the last 12 months.

However, it’s possible that investors could have avoided at least a proportion of Glencore’s falls by taking some time to look at the world around them, or more to the point, the sliding price of commodities. To my mind it stands to reason that falling prices are always going to impact on the bottom line and cause pressure on a leveraged balance sheet.

Now for something completely different

On the flip side, investors in Greggs have been rewarded with outperformance. This came as the company continued to focus on the growing food-to-go market, which includes new products like the heat to eat sandwich and healthier options such as the balanced choice range.

Initiatives such as these translated into total sales growth of 5.2% and like-for-like sales growth of 4.7%.

Despite this growth, it would appear that the job isn’t yet finished. Management intends to continue its focus on improving systems to simplify processes, improving efficiencies and plans to invest £100m in manufacturing and distribution operations over the next five years.

Net cash vs net debt

Some readers will remember the market’s reaction to Glencore’s debt position last year, which sent the shares down to new lows at the time. To be fair to management it has been taking action on this with asset sales, capex reductions, cost savings and passing on the final dividend bringing net debt down to $25.9bn. However, that’s still more than the market capitalisation of the company!

Conversely Greggs, following a review of its cash, decided to maintain a net cash position. Despite this, the group paid its first special dividend of 20p per share (a total of £20.2m), in addition to ordinary dividends paid in the year totalling 23.4p per share.

Management also raised the final dividend by 32.5% to 21.2p per share – that signals confidence in the underlying business to me.

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Dave Sullivan has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.