Will Glencore plc rise by another 50% this year?

Should you pile into Glencore plc (LON: GLEN) following its 50% rise this year?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Few investors would have predicted that by this month, Glencore (LSE: GLEN) would have posted capital gains of 50% since the start of the year. However, a combination of factors have caused the resources major to post a stunning return and looking ahead, there could be further gains on the cards.

Clearly, investor sentiment towards the wider resources sector has had a hugely positive impact on Glencore’s valuation. Commodity prices may not have staged a stunning comeback just yet, but they appear to have at least stabilised after their woeful 2015 and challenging start to 2016. While further price gains can’t be guaranteed, there’s at least the potential for a gradual rise in commodity prices as the forces of supply and demand begin to shift further towards equilibrium.

In addition, Glencore has benefitted from what appears to be a sound strategy to improve the financial soundness of its business. Last year there was some concern among investors regarding Glencore’s balance sheet and specifically the extent to which it was indebted. In response, Glencore launched a range of measures to reduce its debt and with asset disposals and cost-cutting measures seemingly on track to cut Glencore’s leverage, it seems to be moving in the right direction. Further progress could lead to additional capital gains for its investors.

Share price rise ahead?

With Glencore forecast to return to profitability in the current year, it trades on a forward price-to-earnings (P/E) ratio of 34. While this may appear to be rather high, Glencore is forecast to increase its bottom line by 66% in the next financial year. This puts it on a price-to-earnings-growth (PEG) ratio of just 0.5 and this indicates that Glencore’s share price could rise by 50%-plus over the medium term. That’s particularly the case since investors don’t yet appear to have fully factored-in Glencore’s expected rise in profitability next year.

Certainly, there’s scope for a downgrade to Glencore’s upbeat guidance and with results being heavily dependent on commodity prices, Glencore’s rising profitability could come under pressure in 2017. However, with the company having a wide margin of safety, it appears to be worthy of investment for the long term.

In the short term, of course, Glencore remains a highly volatile stock to own. Evidence of this can be seen in its share price performance of the last week, with it falling by 11% in just five days as the wider resources sector was sold-off by investors. Therefore, Glencore may only be of real interest to less risk-averse investors, but this doesn’t detract from its rather enticing risk/reward ratio. Therefore, even after gains of 50% in just over four months, Glencore is relatively appealing and could repeat those gains over the medium-to-long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »