Shares in Glencore (LSE: GLEN), Vedanta Resources (LSE: VED) and Lonmin (LSE: LMI) have had an incredibly rough six months. Indeed, these companies have seen the value of their shares fall by more over the past six months than at any other time in the last 10 years, barring the financial crisis.
These declines have attracted bargain hunters who sense that the selling could be overdone and are willing to take a risk, in the hope of big profits, by taking a position. However, here at the Motley Fool, we’re long-term investors. We look for financially stable companies that we can buy and hold, without having to babysit.
With this in mind, today I’m taking a look at Glencore, Vedanta and Lonmin from a long-term perspective to try and establish if these companies really are attractive after recent declines.
Looking to the future
Over the years, Lonmin has raised hundreds of millions in new equity from shareholders and almost all of this has been spent with little to show for it. As a result, Lonmin’s shares deserve to trade at a discount to book value and should be avoided. At present, Lonmin’s trade at a price-to-book value of 0.21. Over the past six years, Lonmin’s book value per share has shrunk by 17.2% per annum and this trend looks set to continue. For this reason, Lonmin looks like a poor long-term investment.
Trying to value Glencore is tough. The company’s trading division is something of a black box and even the City’s top analysts can’t figure out what goes on inside the trading arm. Glencore’s management doesn’t provide much information on the division either, so when you’re trying to value the company, there’s a certain amount of guesswork involved.
Usually, this would lead me to avoid the company. However, Glencore is majority-owned by its founders, traders and managers and for this reason, the company could be a great long-term investment. Businesses that are majority-owned by their workers usually tend to outperform peers. That said, Glencore still has a mountain of debt to deal with, so the company may not be for everyone.
Operationally, Vedanta has many similarities to Glencore. The company’s founders own a majority stake, the Vedanta group is extremely complex, and the business has a high level of debt. So, how should investors look at the company?
Well, according to one set of City analysts Vedanta is said to remain lossmaking until 2019, and this could put immense pressure on the group’s finances. Of course, if commodity prices rally, the company’s outlook will change significantly. But with three years of losses ahead, Vedanta’s outlook is extremely uncertain. With this being the case it might be wise for investors to avoid the company for the time being.
