The falling price of Bitcoin has left some investors wondering whether it could be a worthwhile recovery play. After all, it’s fallen by over 80% since reaching an all-time high in 2017, and the world is becoming increasingly digital in a number of different areas.
However, resources shares such as Glencore (LSE: GLEN) may be able to offer a better risk/reward opportunity after declines in their valuations. The company released a positive update this week which suggests it could be moving in the right direction. Alongside another resources stock that released an update on Thursday, it could be worth buying for the long run.
The stock in question is copper miner KAZ Minerals (LSE: KAZ). Its revenues in 2018 increased by 12%, with a rise in production of 14%. It was able to keep net cash costs at just 85 USc/lb, which is among the lowest in the industry. This helped to push operating profit 19% higher to $851m, while free cash flow increased from $452m in 2017 to $585m in 2018.
The prospects for the copper industry continue to be relatively favourable. There’s growing demand which is set to continue over the medium term. At the same time, supply is forecast to decline. This could mean that the price of copper rises in the coming years, thereby increasing the profit potential of the business.
Having fallen by 20% in the last year, the company’s share price now has a price-to-earnings (P/E) ratio of just 6. This suggests it offers a wide margin of safety. Since earnings are due to grow by 11% in the current year, there appears to be a clear catalyst which could push its share price higher over the medium term.
Also offering turnaround potential is Glencore. As highlighted, the company’s recent update was relatively sound, able to generate an improving financial performance in what was a challenging overall market.
Of course, the company faces an uncertain outlook. It derives around a quarter of its profit from coal production, which is becoming increasingly unpopular among a variety of investors and regulators due to its carbon emissions. Therefore, the company is seeking to further diversify its operations away from coal. While this may lead to an uncertain transitional period, improvements to its balance sheet and cost structure in recent years could provide it with the financial strength to refocus its business on areas which may offer stronger long-term growth potential.
Since Glencore has a P/E ratio of around 8, it appears to offer a margin of safety. As such, and while its earnings growth in the current year is expected to be relatively low, it may offer recovery potential in the long run after a share price decline of 25% in the last year. This could make it a stronger investing opportunity than Bitcoin, which lacks fundamentals and is difficult to accurately value.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.