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Market volatility is not always a bad thing. It can present opportunities to buy at lower prices. FTSE 100 Index stocks with a view to their eventual recovery.
One stock that has been falling recently and caught my eye is Glencore (London: GLEN).
Let's dig deeper to see if there is an opportunity for you to buy some shares.
Downward spiral
I understand that mining and commodities are an extremely cyclical sector, but they can be lucrative, especially for the larger players, and Glencore falls into that category.
However, the stock has been falling for some time now. Over a 12-month period, the shares are down 13% from 434p at this time last year to current levels of 374p. Looking further back over a two-year period, they are down 23% from 492p to current levels.
One of the main reasons for the recent decline has been the enormous turbulence and volatility. Some of the key ingredients for this have been fears of a recession in the United States and economic and political problems in China.
As global superpowers that help determine the global economy, the problems these countries face can have a ripple effect on markets, businesses and entire sectors. The commodities sector is certainly one of them.
Glencore could continue to experience mixed results when it comes to investor sentiment in this market. Demand for commodities in China and other key markets may fall during these volatile times as infrastructure projects often take a backseat. I will closely monitor these risks going forward.
My investment case
Despite the obvious challenges, Glencore recently reported a mixed set of results for the first half of the year. There were some positives and some negatives.
The key takeaways for me were that revenues rose 9% to $117.1 billion compared to the same period last year. In addition, the company managed to reduce £1.3 billion of debt from its balance sheet and cash flow generation surpassed the $6 billion mark.
On a negative note, Glencore posted a loss of $233 million, compared with a profit of $4.6 billion a year earlier. Furthermore, profit levels fell by more than 30%.
So what has all this volatility, trading and prospects done for Glencore shares? They are now trading at an attractive price-to-earnings ratio of just over 10. Not the cheapest, but certainly cheaper than in recent years, offering investors like me an attractive entry point.
My verdict
From a future perspective, there is no denying that Glencore’s huge footprint, as well as the real-world applications of its raw materials, could propel the company’s earnings and stock to new heights. The green revolution, infrastructure building in the US and China, and the growing adoption of electric vehicles are some examples of how Glencore could cash in.
However, I am a bit concerned about Glencore's current situation and the recent performance update has put me off. I think there are better values elsewhere and I will keep a close eye on the stock rather than buying it for now.
There may be investors with more stomach than me, able to withstand volatility and ups and downs. However, I would prefer a calmer path and look for value stocks elsewhere in the FTSE index.
