Is It Nuts To Buy Strong-Rising Lonmin Plc, Glencore PLC And Anglo American plc Now?

Are the fastest share price gains behind Lonmin Plc (LON: LMI), Glencore PLC (LON: GLEN) and Anglo American plc (LON: AAL)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Serial capital raiser Lonmin (LSE: LMI) has given us plenty of thrills and spills over the last few months. At the beginning of the year, the platinum miner looked like a basket case, its shares still plummeting, even after restocking its coffers with the proceeds of a gargantuan 46-for-one rights issue.

The big bounce

However, Lonmin’s share price staged a dramatic handbrake turn in January when the price of Platinum started to rally. By mid-March, the firm’s share price was up around 300% from its January lows. At today’s 116p or so, Lonmin trades around 37% lower than its March peak, but investors/traders taking the plunge and buying into Lonmin’s potential recovery back in January have so far been handsomely rewarded.

What about now? Should I buy the pullback in Lonmin’s share price? It’s hard to make a case for an investment in Lonmin based on traditional value criteria, because if the price of platinum remains below the level the firm needs to turn a profit, value evaporates. On top of that, Lonmin has a notorious record of poor execution and financial failure, so why should I risk a longer-term investment in the firm?

If I’d benefitted from the recent ‘dash-for-trash’ into Lonmin, which delivered that 300% gain I mentioned earlier, I’d be off like a robber with a bag of swag by now.

Holding its own

Diversified resource producer and marketing operator Glencore (LSE: GLEN) strikes me as a better long-term bet than Lonmin. As ongoing commodity price falls bit deep, Glencore acted fast with a placing in September that helped pay down some of the firm’s borrowings. The company also scaled back zinc production to preserve resources in the ground until prices improve, and plans to sell off assets during 2016.

Glencore’s cash flow remains positive even at today’s commodity prices and the directors say the firm’s marketing operation is a low-risk defensive earnings driver. That’s something the other big diversified miners on the London stock market don’t usually have to help them survive difficult commodity markets.

After appearing to hit a bottom in January, Glencore’s shares shot up around 116% by early March and at today’s 132p have retreated about 23% from that peak. Those movements are less dramatic than Lonmin’s, which shows how bad sentiment was in January for Lonmin’s shares. Should I buy Glencore now? I’m not going to because commodity prices could fall a lot from here. However, if the shares get close to January’s lows again, I may be tempted.

Massive restructuring

Shares in troubled Anglo American (LSE: AAL) had been falling since early 2011 before this year’s rebound started in January. The firm has been restructuring on a big scale, closing down or selling operations and laying off thousands of its employees. Mining just doesn’t pay when the selling price of a firm’s output falls below the cost of production.

It’s a measure of how bad sentiment became that the shares popped up by around 176% between January and early March. At today’s 506p, Anglo American is down around 19% from that peak, but the firm’s trading economics look as vulnerable as Lonmin’s so I won’t be getting involved.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

Just released: our top 3 small-cap stocks to consider buying in October [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

How I’d use an empty Stocks and Shares ISA to aim for a £1,000 monthly passive income

Here's how using a Stocks and Shares ISA really could help those of us who plan to invest for an…

Read more »

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »