The Anglo American share price dips on Q1 production update. Time to buy?

The Anglo American share price has fallen hard in the past two years, after a very tough 2023. But I think that could be about to change.

| 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.

Middle-aged black male working at home desk

Image source: Getty Images

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.

The Anglo American (LSE: AAL) share price was down a few percent on 23 April in early trading.

It comes after the firm posted an 11% rise in copper production in the first quarter of 2024. Anglo’s Quellaveco mine in Peru hit its its highest plant throughput rate. And two key mines in Chile both yielded higher grades.

After the morning dip, the shares were up just 5% in the past five years. But they’re way down from their highs of two years ago. So what’s the issue now?

Diamonds

It looks like the latest gloom is down to diamond production, which dropped by 23% in the quarter. It comes after a global glut in 2023, amid weaker demand.

De Beers, partly owned by Anglo, is cutting its production for the year by around 3 million carats.

The Anglo American share price is also still suffering from the firm’s ongoing drive to streamline its operations and cut costs.

CEO Duncan Wanblad said the firm is “progressing through our asset review to optimise value by simplifying and improving the overall quality of the portfolio.

He also pointed out that copper now makes up 30% of the company’s production. And I don’t think that’s a bad thing at all. It’s one of the most in-demand metals, and largely independent of fad, fashion and technology.

Forecasts

Anglo American had a disastrous 2023, with a huge fall in earnings and painful cash outflow. But forecasts suggest it could bounce back quickly, and then some.

If the analysts have it right, we could see earnings getting back to pre-slump levels in the next couple of years. And that, on today’s share price, could drop the price-to-earnings (P/E) ratio to under 10 by 2026.

The P/E can be misleading in a cyclical sector, though. But the same forecasts put the dividend back up close to 4% by 2026.

It sounds like an attractive valuation. But I have some doubts.

Safety margin

I just don’t know if there’s enough safety margin there to cover the clear risks of the next few years.

After all, that mooted 2026 dividend is pretty much bang on the overall FTSE 100 yield forecast for this year. And we’d have to wait three years to get it.

And though the P/E looks low, there are plenty of lower FTSE 100 multiples for stocks that I think are safer.

Just look at Barclays, for example, on a forecast P/E of 6.2. Or M&G with a forward dividend yield of 9.7%.

Global demand

The next few years for Anglo American will surely depend to a large extent on Chinese demand, which could go anywhere. But I do think the focus on key commodities like copper could be setting it up well for the future.

Despite my reservations, I think Anglo American could be a good one to consider buying for at least a decade. In fact, I wouldn’t buy a stock in this sector with an outlook any shorter than that.

Anglo American might make it into my Stocks and Shares ISA in 2024.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc and M&g Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

5 steps to start buying shares with under £500

Learn how this writer would start buying shares with a few hundred pounds in a handful of steps, if he…

Read more »

Young happy white woman loading groceries into the back of her car
Investing Articles

The FTSE 100 offers some great bargains. Is this one?

Our writer digs into one FTSE 100 share that has had a rough 2024 to date, ahead of its interim…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£9,000 of savings? Here’s my 3-step approach to aim for £1,794 in passive income

Christopher Ruane walks through the practical steps he would take to try and turn £9,000 into a sizeable passive income…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

I’d buy 29,412 shares of this UK dividend stock for £150 a month in passive income

Insiders have been buying this dividend stock, which offers an 8.5% yield. Roland Head explains why he’d choose the shares…

Read more »

Red briefcase with the words Budget HM Treasury embossed in gold
Investing Articles

Could the new UK budget spell growth for these 6 FTSE stocks? I think so!

Mark David Hartley considers six UK stocks that could enjoy growth off the back of new measures announced in the…

Read more »

Investing Articles

With a 6.6% yield, is now the right time to add this income stock to my ISA?

Our writer’s looking to boost his Stocks and Shares ISA. With this in mind, he’s debating whether to buy a…

Read more »

Dividend Shares

This blue-chip FTSE stock just fell 12.5% in a day. Is it time to consider buying?

Smith & Nephew is a well-known, blue-chip FTSE stock with a decent dividend yield. And its share price just dropped…

Read more »

Investing Articles

At 72p, the Vodafone share price looks to be at least 33% undervalued to me

Our writer looks at a number of valuation measures to determine whether the Vodafone share price reflects the fair value…

Read more »