Glencore (LSE: GLEN) shares have come down in price recently. At the start of the year, they were trading near 550p. Today, however, they can be picked up for around 450p.
Is this a good opportunity to buy the shares? Let’s take a look.
Deep value?
There are certainly reasons to be bullish on the shares at their current level.
They look relatively cheap for a start. Currently, analysts expect Glencore to generate earnings per share of 88.4 cents this year. That puts the stock on a forward-looking price-to-earnings (P/E) ratio of just 6.3 right now – less than half the average FTSE 100 P/E ratio.
Meanwhile, a number of brokers have upgraded the stock to a ‘buy’ rating recently. Earlier this month, both BofA Global Research and UBS upgraded it to a buy, citing an attractive entry point after the recent share price fall.
Analysts at BofA said they see “deep value” in the shares, while analysts at UBS said that they view the risk/reward as attractive again.
It’s worth noting that of the 18 brokers covering Glencore, 12 have the shares as a buy while six have the shares as a ‘strong buy’.
High dividend yield
Additionally, they sport a very attractive dividend yield currently. At present, the dividend forecast for 2023 is 52.9 cents. That equates to a prospective yield of around 9.5% at today’s share price. It’s fair to say that the yield is eye-catching.
A volatile stock
Investors need to be aware of the risks here, however.
One major risk is share price volatility. Last year, Glencore was one of the best performers in the FTSE 100. This year, however, it’s one of the worst performers. Anyone who bought the stock at the start of the year is down nearly 20%.
There are a lot of things that can send the share price down. Lower commodity prices, talk of a recession, and operational setbacks are some examples. We can’t rule out further share price weakness in the near term.
Another risk is the fact that revenues and profits tend to fluctuate a lot. This is not a company that has a history of delivering steady top- and bottom-line growth. Because its performance is dependent on commodity prices (over which it has no control), revenues and profits tend to swing around wildly. For example, while the company posted a large profit for 2022, it posted losses for 2019 and 2020.
It’s worth noting that net profit for 2023 is forecast to be much lower than 2022’s net profit ($11bn versus $17.3bn).
My take on the shares
Putting this all together, I can see some appeal in Glencore today. The shares look cheap and the dividend yield is attractive right now.
However, given the ever-present uncertainty over commodity prices, there’s a speculative nature to the business. Those looking at investing in Glencore would be wise to look at other shares as well for diversification.
