I thought Glencore (LSE: GLEN) shares looked good value when I spent £2,000 buying 422 of them on 26 July last year at 472.6p.
They looked even better value when I averaged down and bought another 232 on 1 September at 428.9p for £1,000. That was at a discount of 9.2% to my original purchase.
Glencore shares are even cheaper today at 379.9p. So far I’m down 17.11% overall, and my original £3k has shrunk to £2,485. I’m sitting on a paper loss of £515. It’s easily the worst performer out of the 25 stocks and investment trusts in my self-invested personal pension (SIPP) over the last year.
This stock is going down
So here’s the question. Is the Glencore share price even better value after its latest downwards lurch and should I dive in again?
I like buying out-of-favour stocks in principle, as it allows me to get a cheaper entry price. It’s risky though. Share prices usually fall for a reason, and there’s no guarantee they will recover.
Glencore has been hit by economic problems afflicting China, the world’s main consumer of metals and minerals. There’s little the board can do about that, aside from sit back and hope it recovers. Commodity stocks are cyclical and investors have to accept that.
I don’t expect a quick recovery in China — the latest stimulus package had only a short-lived effect — but it will hopefully come given time.
Cobalt, nickel and zinc prices have all fallen sharply, while Glencore has also been hit by falling energy prices, particularly coal and liquid natural gas (LNG), and to a lesser extent, oil.
On Wednesday (21 February), it reported that full-year adjusted 2023 EBITDA had fallen by half, from $34.06bn to $17.1bn. This sent the stock down another 5.6%, hitting a new 52-week low of 365.31p along the way. Over 12 months, the Glencore share price is down 23.3%.
When I bought Glencore shares they were yielding more than 8%. Sadly, I won’t be getting that kind of income for some time.
Volatile dividend income
In 2022, it lavished shareholders with $7.1bn. That’s now being cut to just $1.6bn for 2023. The savings will pay off the cost of purchasing its a 77% stake in Teck’s Elk Valley Resources (EVR) business last year.
That’s probably a better use of the company’s cash but not much fun for me. Consensus suggests a yield of 3.71% in 2024, less than half of what I hoped for and below the FTSE 100 average of around 3.9%. Such are the risks of buying dividend stocks, as the income is never guaranteed. Commodity stocks are particularly volatile in this respect.
I won’t sell my Glencore shares though. Today, interest rates are high and the global economy is down in the dumps. Yet I think both are nearing the turning point. Instead of selling at today’s lows, I’ll invest another £1k or £2k the moment I have the cash. Trading at 11.2 times earnings, Glencore shares look good value. Wait. Haven’t I said that before?
