Glencore (LSE:GLEN) shares were the most bought and sold, in value terms, by Hargreaves Lansdown investors last week.
The trading and mining stock accounted for 6.06% of share value bought and 7.68% of share value sold. This doesn’t mean that more of the stock was sold than bought, as the figures are proportions of total share dealings on the platform.
In fact, the Glencore share price pushed upwards last week.
So let’s take a closer look at the stock, and explore what’s been driving the share price, and where it could go next.
A strong year
If I’d invested £1,000 in Glencore a year ago, today I’d have £1,340, plus around £40 in dividends. That’s an excellent return, around 38% in total.
The stock has defied concerns around a weakening global economy and, after a dip in late summer, surged in the autumn.
The surge is also in spite of the firm posting sharp declines in its output of several industrial and precious metals over the first nine months of 2022.
What’s driving trading activity?
There are two main considerations for investing in the mining and resources sector, in my opinion.
Firstly, I’m concerned about near-term weakness in the global economy. It’s not a given that the demand for resources will fall in 2023, but there is some uncertainty.
Essentially, analysts are expecting weakness in European and US growth throughout the year. But this could be offset by China’s reopening. Metals are a key beneficiary of the country’s re-opening.
This is reflected in the stock’s valuation. Glencore trades with a price-to-earnings (P/E) ratio of 5.76 times. That’s well below the FTSE 100 average of around 13.5 times.
Sometimes, stocks are cheap for a reason. And, in this case, the reason is uncertainty.
Long-term prospects
The second consideration is the long-term prospects. I think we’re entering an era of increased competition for resources and, in turn, this will drive prices upwards.
In fact, various analysts support this. And resources prices are expected to be higher across the next 10 years than in the previous decade.
Demand for metals like copper and iron ore could soar amid rapid urbanisation and the green energy revolution. This will be compounded by the infrastructure boom we’re seeing in developing economies such as Indonesia.
Glencore’s main products include copper, cobalt, zinc, nickel and ferroalloys. Steel — a ferroalloy — and copper are integral to infrastructure and electrification agendas. Meanwhile, nickel and cobalt are vital components of electric vehicles (EVs).
In fact, on average, an EV requires more than double the amount of copper versus a combustion engine vehicle. And while the latter don’t require any nickel or cobalt, EVs need 39.9kg and 13.3kg per car respectively.
So the long-term prospects appear positive, but it’s the near-term uncertainty that poses a problem. As such, I’m not buying yet. I’m waiting for a better entry point, although this could be well into 2023.
