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Glencore’s (LSE: GLEN) share price has fallen like a stone recently. As I write before the market open on Monday 7 April, it’s down 33% year to date, 48% over a year, and 53% from its 52-week highs.
Is it time for investors to consider buying shares in the commodities giant? Let’s discuss.
Not my kind of stock
Let me start by saying that Glencore isn’t the type of share I buy for my own portfolio. To me, commodity stocks are too unpredictable.
Mining companies don’t have much control over their revenues and earnings. That’s because commodity prices swing around from one day to the next (and the moves can be substantial).
On Friday, for example, the price of copper (Glencore’s main commodity) tanked. Due to worries over a global trade war – which sparked a sell-off in metals – it experienced its worst fall in five years.
Given the unpredictable nature of earnings, mining stocks are hard to value. Price-to-earnings (P/E) ratios are essentially meaningless because earnings (the ‘E’) can be all over the place and come in way above or below analysts’ forecasts.
Forecast dividend yields can’t really be trusted either. Because when profits fall, dividends are often reduced.
I prefer to go for companies that are in charge of their own destiny and have the ability to continually raise their prices. An example here is Sage, which sells accounting software.
It’s worth pointing out that while Glencore’s share price has tanked recently, Sage shares have held up reasonably well. Over one year, they’re only down 5% (versus -48% for Glencore).
But I do see potential
Having said all that, if we’re patient, I think there’s a chance that Glencore shares could work from here.
In the short term, there’s quite a bit of uncertainty. Donald Trump’s tariffs are likely to hit earnings. Meanwhile, a major global economic slowdown — a full-blown recession — is looking increasingly likely. This could negatively impact demand for copper.
But in the long run, the fundamentals for copper continue to look pretty good. Over the next decade, the transition to electric vehicles (EVs), the shift to renewable energy, and the scale-up of data centres should all lead to higher demand for copper (and higher revenues for Glencore).
So, the stock could come good for long-term investors.
A large director buy
One person who clearly sees potential in Glencore shares right now is CFO Steven Kalmin. On Friday he snapped up 588,498 shares at a price of £2.33 per share, spending roughly £1.37m on stock.
That’s a large trade from the insider. And it shows confidence in the long-term story.
Perhaps Kalmin is also optimistic that Glencore’s trading division can capitalise on the volatility in commodity prices. After all, volatile prices can create plenty of opportunities for traders.
Risk vs return
In summary, Glencore shares are a little speculative, in my view. With this company, it’s very hard to know what’s going to happen in the near term, and get a read on the valuation.
But if an investor is willing to buy the shares now and hold for many years, I think there’s a reasonable chance they will provide attractive returns. In the long run, demand for copper is likely to rise. I see this as one to consider.
