Investors can’t get enough of Glencore (LSE: GLEN) stock. On the IG platform last week, the shares made up 2% of all buy trades. Investors bought more shares in the multinational miner than any other stock apart from Tesla.
Analysts like the look of it too with nine out of 10 city analysts calling the FTSE 100 miner a “buy” with an average target of +26% on the share price alone.
I own some Glencore stock already but I’m intrigued by what’s going on. If the shares are so popular, perhaps now is a rare time to pick them up at a cheap price.
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So what’s all the buzz about? It’s nothing to do with a rising share price. After surging energy prices lifted most resource stocks in 2021 and 2022, Glencore ended 2023 down 16% for the year and has fallen even further in 2024.
The lagging share price has bumped up the firm’s dividend yield though. A 7.48% return looks enticing at nearly double the FTSE 100 average, and the dividend was paid from just 32% of earnings. Investors might be looking at this as one of the best passive income stocks around.
But for me, the most interesting news coming out of Glencore is a pivot away from coal operations. It recently purchased the Canadian coal business Teck Resources and intends to spin off the whole thing into a new firm worth tens of billions of dollars.
No coal
Severing ties with the dirty black rock is no small move. Coal made up over 50% of revenues in the last fiscal year after a surge in energy prices.
Is this why investors are piling in? A sharp about-turn towards the green energy revolution? Perhaps a buying frenzy was caused by investors impressed by the management’s new direction.
With coal out of the picture, Glencore will hope to earn revenues from metals crucial in the green energy transition. The miner is the world’s fourth biggest producer of copper and its second biggest producer of nickel.
If the world’s shift towards renewables proceeds smoothly then rising demand and prices for these metals could be rather fruitful.
A possible buy?
Do I think it’s a good buy at present? Well, I can’t say I’m completely won over. The transition away from coal is an enormous step, and it seems to be caused more by decreasing demand in China rather than belief in the future of green energy.
And while I understand the impetus to reduce fossil fuel consumption, when will that happen? The recent rise in costs of raw materials has already landed a body blow on the move towards net zero.
I’d receive stock in the spin-off of a new company, but this only complicates matters further.
Do I want to buy more stock in a company with such an uncertain future? I’d have to say no.
