Why I’d buy Anglo American shares now

The Anglo American share price rose today on fantastic results. But can it keep rising?

| 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.

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.

Anglo American (LSE: AAL) has seen its share price double over the past year. I reckon this makes it among the best performing FTSE 100 shares for this time period. But will the multi-commodity miner slow down? I doubt that. 

I think, at worst, its share price could dip for brief periods as another round of stock rotation happens. Its price-to-earnings (P/E) ratio was already somewhat high at 27 times before the results were released, which further indicates that some decline is possible. 

Incredible profit increase 

But going by its strong results, I think it is only a matter of time before the Anglo American share price can start inching up again. Its revenues are up 119% for the half year ending 30 June 2021 and its net profit is up an incredible 1,001%. Of course, the numbers look exaggeratedly big because they are being compared with last year, when there was a dip in the company’s performance. 

But even if I compare the numbers to 2019, they still look pretty damn impressive. Revenue is up over 47% from the first half of 2019 and net profit is up a whole 175%. This increase too, can be attributed to a big stroke of luck for miners. Commodity prices have been on fire in the past year, supported by government stimulus. But not all miners have been able to benefit equally. 

What is Anglo American doing right?

This suggests that Anglo American is doing something right, further building my confidence in the stock. It helps that some of its biggest income generators like the platinum group metals, copper, and iron ore saw elevated prices during this time. 

But also, that their production was not compromised because of unexpected factors like poor weather, for instance. Its platinum metals production grew, as an example, by 28% compared to last year. Diamond prices rose as well. But in this case too, the company reports a rise in consumer demand in the post-pandemic period. 

Share buyback can raise the Anglo American price

The Anglo American share price can also rise because of its stock buyback, which can push up its price in the short term. As per a Financial Times report, CEO Mark Cutifani said that the “The share buyback should tell you that we don’t think this is as good as it gets.” To me this suggests that the share price can indeed rise further. 

Risks and assessment 

At the same time, it is essential to bear in mind that the Anglo American performance is vulnerable to government actions. And if public spending is to slow down or be redirected in a manner that does not suit industrial metal miners, it may not see such good times ahead. In any case, as a cyclical stock it is tied to ups and downs in business conditions. If growth is slow, its performance can dip. 

These risks may not bear out though. I am more optimistic than not about Anglo American for now. It is a buy for me.

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.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »