At 400p, Glencore’s (LSE:GLEN) share price looks exceptionally cheap to me. In fact, as a long-term FTSE 100’s greatest value stocks.
The commodities giant’s shares trade on a forward price-to-earnings (P/E) ratio of 8.5 times. This is far below the UK blue-chip average of 14 times.
Meanwhile, its dividend yield of 8.7% for 2023 smashes the 3.7% average for FTSE 100 shares.
Here are three reasons why I believe Glencore shares are too cheap to miss right now.
1) Growing end markets
Investing in mining stocks is riskier than normal right now. An uncertain outlook for the global economy also makes it difficult to predict how strong short-term earnings will be for these cyclical shares.
Weak export data from major commodities consumer China have set alarm bells ringing again on Tuesday. Outbound shipments plunged 14.5% in July, the biggest drop in three years.
However, metals and energy demand forecasts beyond the next couple of years look far more encouraging. As someone who invests for the long haul (say a decade, or more) this makes Glencore shares highly attractive.
I expect, for example, sales of its copper, nickel and cobalt to soar as electric vehicle (EV) and renewable energy demand increases. The outlook for its iron ore is also looking good as urbanisation in emerging markets steadily rises and infrastructure spending in the West grows.
At the same time, only small amounts of new supply are tipped to hit the market. So the price Glencore asks for its raw materials could surge in the coming years.
2) A robust marketing unit
I like Glencore because it’s more than just a commodities producer. It also has a significant marketing operation, which means it offers less risk than most other mining stocks. Problems at the exploration, mine development and production phases can have significant impact on profits.
What’s more, Glencore’s marketing unit continues to report impressive trading performances. For this year, it’s expected to generate adjusted earnings before interest and tax (EBIT) of between $3.5bn and $4bn. This is ahead of the firm’s long-term target of $2.2bn-$3.2bn.
3) Balance sheet strength
A rock-solid balance sheet provides Glencore shares with even more appeal. In fact, with net debt of just £1.5bn as of June, the company is one of the most financially-robust miners out there..
This has significant benefits for investors. It gives the FTSE firm the financial scope to return lots cash to shareholders through large and buying back shares. In fact, on Tuesday, it launched a $1.2bn share repurchase programme to be completed early next year.
Strong cash generation also gives the company room to make earnings-boosting investments. It plans to spend $5.6bn a year through to 2025 to develop assets like its Collahuasi copper joint venture in Chile.
The business is also active on the acquisitions stage, and in recent weeks agreed to pay $475m for a majority stake in Argentina’s Mara copper project from Pan American Silver.
There are many great FTSE 100 shares I can buy at low prices today. On balance I think Glencore is one of the best.
