Glencore (LSE: GLEN) shares are experiencing a rough patch at the moment. This year to date, they’ve fallen about 20%.
Is it worth buying a few shares in the commodity giant for my portfolio after this pullback? Let’s discuss.
Long-term potential
Taking a long-term view, I can see reasons to be bullish on Glencore.
In the years ahead, demand for many of the commodities the company produces (copper, nickel, zinc and more) is expected to rise, driven by factors such as population growth, infrastructure development, and the global shift to renewable energy. This increase in demand could potentially lead to higher commodity prices, which could in turn, boost Glencore’s revenues and its share price.
Meanwhile, the company has a history of rewarding investors with chunky dividend payments and share buybacks. Last year, for example, investors pocketed a total of 50 cents in dividends as well as buybacks. So, there could potentially be multiple sources of return here going forward.
A volatile business
On the downside, however, this is a really volatile business (and stock). This is due to the fact that Glencore’s revenues are dependent on commodity prices, and these can fluctuate wildly. The nickel price, for example, has fallen from around $30,000 per metric ton to $17,000 per metric ton in the last year.
This volatility was illustrated in the company’s 2023 results, which were posted in February. For the period, revenue fell 15% year on year to $218bn, while earnings per share fell a whopping 74% to $0.34.
These fluctuations in revenues and earnings are a turn-off for me. Because ultimately, they mean it’s really hard to make forecasts about future earnings.
And if we don’t know what future earnings are going to look like, it’s difficult to accurately value the company as price-to earnings (P/E) ratios are not very helpful.
It’s also hard to project a future share price. So, investing here is a bit of a gamble, to my mind.
The volatility can also have a big impact on dividends. In its recent full-year results, Glencore slashed its payout, proposing a base distribution of just $0.13 for 2024.
The dividend has been one of the big attractions of this stock in recent years. So, the reduction will no doubt have disappointed a lot of investors.
One other thing to note about Glencore is that it’s quite a complex business. Unlike regular commodities companies, which simply dig stuff out of the ground and sell it, Glencore is engaged in commodity trading. So, there are many moving parts to this company. And that means more things can go wrong.
My move now
Weighing up the pros and cons, I won’t be buying Glencore shares for my portfolio. For me, this business is just a little too complex and volatile.
All things considered, I think there are better (and more predictable) stocks to buy for my portfolio in 2024.
