Suffice to say, the last year has been horrific for the mining sector. Commodity prices have sunk, investor sentiment has weakened, and the share prices of most mining companies have sunk to new lows.
There are, of course, exceptions to the rule. And, while Glencore (LSE: GLEN) is down by 3% in the last year, its fall is far less than many of its large cap mining peers. Centamin (LSE: CEY), meanwhile, has seen its share price rise by a hugely impressive 13% in the same time period. Could these two companies, then, continue their outperformance of the wider sector?
Financial Standing
Despite their share price rises, both Glencore and Centamin have seen their bottom lines fall heavily in recent years. For example, Glencore’s earnings fell by 71% between 2011 and 2014, which is an incredibly disappointing performance for the company’s shareholders, while for Centamin things are not much better. It is due to report a 62% fall in its bottom line between 2013 and 2015, which shows just how challenging things are for mining stocks at present.
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However, both companies are easily making dividend payments. That’s a very encouraging sign for investors, since it shows that they have sufficient earnings both to make shareholder payouts and reinvest within their businesses. And, with Glencore’s dividends set to be covered 1.9 times by profit next year, and Centamin’s 3.5 times, if their bottom lines do disappoint then it is likely that dividend payments will still be made. This could help to support the two companies’ share prices – especially when you consider that they trade on hugely enticing forward yields of 3.3% (Centamin) and 4.2% (Glencore).
Looking Ahead
Clearly, the futures of the two companies are highly uncertain, with the outlook for the mining sector being very unpredictable. However, investors in the two stocks should gain a degree of confidence from the valuations that are currently on offer. For example, Glencore trades on a price to book (P/B) ratio of just 1.1, while Centamin has a P/B of just 0.8.
Both of these figures indicate that Glencore and Centamin offer wide margins of safety so that, even if there are asset write downs in future or disappointment regarding their financial performance, their share prices may not be hit as hard as you may expect. Furthermore, they indicate that there is significant upside on offer, thereby making Glencore and Centamin two of the most appealing stocks in the mining sector, with there being a number of other equally appealing opportunities elsewhere.
