This week’s share tip: Glencore (GLEN)

Looking for some investing inspiration? I’ll be explaining details each week about a particular stock or share. This isn’t financial advice or a recommendation to buy an investment; it’s purely for informational purposes. Keep an eye out each week for the latest share tips.

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Glencore (GLEN) – the basics

This week’s share is Glencore (GLEN). Glencore is one of the largest natural resource companies in the world and is a mining behemoth.

Founded in the 1970s, Glencore now employs over 135,000 people and operates roughly 60 mining, metallurgical and oil production assets. Glencore’s also a market leader in recycling copper and precious metals.

Oil is an out-of-favour substance, but as we transition to greener energy and fuel, Glencore’s mining operations are crucial. Glencore is one of the largest global miners of materials like cobalt, copper, and nickel.

You may not be familiar with cobalt, but it’s an essential element in the production of lithium-ion batteries. As it stands, these are the batteries powering most electric vehicles (EVs) on the road. Copper and nickel are also materials that are extremely important to the green transition.

History of the company

Glencore operates globally, but the company is listed on the London Stock Exchange (LSE), making it reasonably accessible to UK investors.

Over the years, Glencore has integrated its business model vertically. It also acquired a stake in Anglo-Swiss mining company Xstrata, followed by several company acquisitions.

Glencore went on to fully merge with Xstrata to become one of the largest natural resource companies in the world.

Current performance of Glencore

The Glencore share price, although volatile, has been tracking well over the last few years. Sitting at around 540p, the year-to-date (YTD) price is pretty flat, but it’s been a turbulent year for most investments.

The fact that the share price is in a better position than it was a year ago (400p) is more than can be said for most investments.

Glencore’s also been a popular pick for investors looking for commodity diversification. Where tech and growth stocks have tumbled, mining and energy stocks have picked up the slack.

The company has been in a good position to take advantage of the current climate, beating its production forecasts for Q4 2022. Also, Glencore’s involvement in a range of materials gives it more diverse revenue streams than something like a pure gold mining company.

How to buy Glencore shares

Glencore dividends

As it stands, the Glencore (GLEN) annual dividend yield is 4.17%.

Dividends are paid twice yearly. Don’t forget that dividends aren’t guaranteed. It’s a way to reward investors if the company performs.

Unexpected things can happen, and dividend payments can be reduced or stopped altogether.

What lies ahead for Glencore?

I think Glencore (GLEN) is looking strong within the current economic climate. The squeeze on energy and growing demand for materials such as cobalt, nickel, and copper plays into the hands of the firm.

There’s also likely to be increasing investor interest in commodity-based companies like Glencore with a strong cash flow and a well-established business model. This is because an environment of higher interest rates and above-normal inflation makes this company more attractive.

It’s also interesting from a value perspective. The current P/E ratio for the firm is 5.6, which is less than half of the FTSE 100 average P/E ratio. Glencore’s strong commitment to a stable dividend policy is also something that investors looking for income will find attractive.

What to be aware of

Although things look positive, there are some key areas to be aware of if you’re thinking about investing in Glencore:

• The share price is very volatile (which tends to be the case with commodity-focused companies).
• Some aspects of Glencore’s portfolio of energy and materials are not climate-friendly, like coal.
• Demand for certain materials could drop, and switching mining production is an expensive and lengthy process.
• Geographical regions where mining occurs can sometimes be at risk of economic or political instability (for example, the Democratic Republic of the Congo).
• Production of materials like copper, zinc, gold, and silver fell in 2022.
• It makes much of its money trading commodities (not just producing them).

The bottom line on Glencore

The outlook for the next year is looking strong for Glencore, but commodities can be an extremely volatile and risky sector. So it’s important to be well aware of the potential challenges and obstacles the company could face in the long run, especially if it can’t fully adapt to a greener future.

How to buy Glencore shares