The Motley Fool

Why I’d buy the Glencore share price at today’s dirt cheap price

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.

Image source: Getty Images.

Investing in FTSE 100-listing mining giant Glencore (LSE: GLEN) certainly isn’t boring. Its shares crashed from 300p to just 90p in 2015, only to end 2016 back at 290p. Quite a ride.

Corruption threat

The Glencore share price is down 26% over the past 12 months, and fears of a global slowdown aren’t the only culprit. It is now being probed for “corrupt practices” by the US Commodity Futures Trading Commission (CFTC), amid reports of money-laundering and other compliance issues in the Democratic Republic of Congo, Venezuela and Nigeria. It has been ordered to hand over documents to the Department of Justice.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

The group was also caught up in President Trump’s sanctions on Russian companies, because of its 8.75% stake in Russian aluminium producer Rusal, although these have since eased. 

Billionaire CEO Ivan Glasenberg plans to retire in the next three to five years. His final stint at the world’s biggest mining company isn’t going to be dull.

At the coal face

In 2018, Glencore’s adjusted EBITDA earnings rose 8% to $15.8bn while net income rose 5% to $5.8bn. It was boosted by a sharp rise in commodity prices, still the main factor driving mining sector sentiment and stock movements.

Earnings have cooled on falling prices for thermal coal, which makes up around 25% of the group’s earnings. Coal is likely to face growing environmental challenges, for example, Norway’s massive sovereign wealth fund may sell its $1bn stake to meet its Parliament’s tighter ethical investing rules. However, that is only around 2.03% of Glencore’s stock, and the shift to electric power could boosts earnings at its copper and cobalt mines in Africa.

Glencore has suffered one or two broker downgrades in recent months, amid concerns that its start-of-year rally left the share price vulnerable. Trading at 10.9 times forward earnings, it hardly looks overvalued, though.

War talk

Net debt is a worry though, up 44% last year to a higher-than-expected $14.7bn, even if it’s still within its desired range of between $10bn to $16bn.

The £40bn Swiss-based, London-listed company has enjoyed healthy cash flows, which funded $5.2bn of shareholder returns and buybacks in 2018. In February it announced a base distribution of $0.2 per share worth $2.8bn in total, plus a new $2bn buyback programme. The board may also top this up, depending on market conditions, and the progress of this year’s targeted $1bn of non-core asset disposals.

Macro concerns

The current yield is 5.64%, comfortably above the 4.5% average yield for the FTSE 100. This makes Glencore a top dividend stock, and a tempting long-term hold, but should you buy it now? Concerns over the global economy are growing (aren’t they always) while China’s growth is slowing, with Trump’s trade war aggravating the problem.

We could see a turnaround on both these issues shortly, though. The Fed is expected to cut interest rates two or three times this year, which may light up stock markets, while Trump is tweeting optimistic signals on talks with China. Both could boost Glencore. 

Commodity stocks are cyclical and with the stock down a quarter in the last year, now may be a buying opportunity. Those corruption charges could weigh on the share price for some time, though.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Harvey Jones 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.