The 2020 stock market crash presented an ideal buying opportunity for investors looking to pick up a bargain or two. In the depths of the sell-off, the FTSE 100 index lost 32% of its value. On top of this, many quality UK shares were trading far below average historic valuations. That still remains the case for numerous companies listed in the index today and one that I think may have been largely overlooked is Glencore (LSE: GLEN).
The Glencore share price
The commodity trading and mining company saw its share price tumble by 52% in the depths of the market crash. Since then though, the shares have recovered much of their value. That said, it’s worth noting that the company’s valuation is still down by around 26%. Right off the bat, the shares appear to offer a wide safety margin. What’s more, they don’t appear overvalued relative to other miners in the index, with a forward P/E of 13.5.
Since flotation on the London Stock Exchange in May 2011, the Glencore share price has had a bumpy ride. To illustrate, those who bought shares on day one would have lost 85% of their initial investment when the company’s valuation hit rock bottom on 15 January 2016. However, if you’d invested around that time, you’d currently be sitting on approximately 130% gains.
In late April, Glencore released its first-quarter 2020 production update. The company reassuringly announced that most of its operations had not seen any material impact from the pandemic. However, government restrictions in Canada, South Africa, Colombia and Peru have caused some disruption.
In the report, Glencore also highlighted the opportunities that have arisen for its marketing business as a result of the volatile and complex commodity trading environment. Success here has enabled the company to generate annualised earnings in line with its long-term guidance range.
Positive future outlook
Things look good moving forward too. At the beginning of the week, news surfaced of a deal struck between Tesla and Glencore for batteries. The agreement stipulates that the electric car manufacturing company will buy cobalt from the FTSE 100 miner for use in its new car plants. With Glencore being the largest industrial supplier of cobalt in the world, I think the long-term partnership could prove a catalyst for further growth in the company.
Moreover, as the global economy recovers, I expect activity in the resources sector to swiftly return to pre-pandemic levels. If so, investor sentiment towards mining stocks is likely to improve, causing share prices to rise. In fact, analysts at Deutsche Bank have already hiked their price targets for numerous miners on the back of strong demand in China.
Overall, given the company’s strong liquidity position and resilient business model, I think Glencore is more than capable of navigating the current challenges facing the sector. As such, now could be an ideal time to buy the shares at a reduced valuation and hold them for the long term.
Don’t miss our special stock presentation.
It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.
They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.
That’s why they’re referring to it as the FTSE’s ‘double agent’.
Because they believe it’s working both with the market… And against it.
To find out why we think you should add it to your portfolio today…
Matthew Dumigan 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.