Image Source: Getty Images
glencore (LSE:GLEN) stocks are one of many analysts’ top picks in 2023. The miner is expected to outperform this year given its growth potential and strong dividends. However, since the stock price hasn’t moved since the beginning of the year, I’m looking forward to buying more for passive income.
coal demand
The company’s current dividend yield of 4.2% isn’t particularly a cry for passive income. However, it is worth noting that this is a final figure. Analysts estimate that its dividend will increase to 43 pence per share this year. This would give me a nice 8% forward yield if I were to buy Glencore shares today.
So how is the company going to double its current performance? Well, since Glencore generates most of its revenue from coal, analysts are betting that the commodity will remain at high prices through 2023.
Having said that, coal prices have now fallen close to their one-year low. Experts attribute the weakness to prospects for increased supply and reduced demand due to an impending recession. This has been evident in recent Kpler data, which shows that European imports are down about 30% from last year and 23% from December.
However, the medium and long-term outlook remains largely unchanged. That’s because the rock’s top consumer, China, has resumed imports from Australia. As such, strong coal demand from China should offset any temporary weakness in the fuel and provide some support for Glencore shares.
drive growth
However, in addition to coal, the world’s largest miner also has a number of metals in its portfolio. These include copper, zinc and nickel, which have the potential to increase in price due to the transition to greener technologies.
So it was a bit disappointing to see the production numbers Glencore shared this week. Copper and zinc experienced double-digit falls, and gold and silver also fell. However, these setbacks should be temporary and were the result of weather disruptions and equipment failure.
hard as rocks
Also, the conglomerate has a pretty solid financial set. A shrinking debt pile coupled with rising free cash flow is music to my ears. And with earnings expected to double in the next two years, I see a lucrative investment opportunity for myself.
Not only that, Glencore shares are also trading at what I currently see as bargain levels. Both its current and future valuation multiples remain cheap relative to the market and industry average.
| Metrics | valuation multiples | industrial average |
|---|---|---|
| Price-Earnings Ratio (P/E) | 5.6 | 6.8 |
| Price-Sales Ratio (P/S) | 0.3 | 1.4 |
| Price-to-book (P/B) ratio | 1.8 | 1.2 |
| Price/Forward Sales (P/S) Ratio | 0.3 | 2.2 |
| Forward price-earnings (P/E) ratio | 4.9 | 12.1 |
That being said, there are a couple of risks worth mentioning. The first is the downside risks to the commodity giant’s portfolio. Despite coming off their highs, coal and metals prices remain elevated for five years and therefore could fall further. The second is Glencore’s position as the first pick. A recent report from aj bell He cites that top picks generally underperform the market, and have done so in seven of the past eight years.
Still, I remain confident in its outlook over the medium term, and I think at these prices it could be a once-in-a-lifetime bargain. After all, CEO Gary Nagle reiterated the group’s strong production guidance for 2023. For that reason, I’m inclined to agree with citi which has a ‘top pick’ rating with a £6.50 price target. I will buy more shares.
var config = {
apiKey: ‘1ed121d592e04642d57912bb369ef696621661a3’,
product: ‘PRO_MULTISITE’,
logConsent: false,
notifyOnce: false,
initialState: ‘NOTIFY’,
position: ‘LEFT’,
theme: ‘DARK’,
layout: ‘SLIDEOUT’,
toggleType: ‘slider’,
iabCMP: false,
closeStyle: ‘button’,
consentCookieExpiry: 90,
subDomains : true,
rejectButton: false,
settingsStyle : ‘button’,
encodeCookie : false,
accessibility: {
accessKey: ‘C’,
highlightFocus: false },
onLoad: function () { // hide Cookie Control recommended settings button.
var recommendedSettingsButton = document.getElementById(‘ccc-recommended-settings’);
if (recommendedSettingsButton) {
recommendedSettingsButton.classList.add(‘hide’);
} },
text: {
title: ‘Privacy Notice’,
intro: ‘This site uses cookies, pixels, and other similar technologies to improve your web site experience and to deliver you personalised ads about our own and third party products and services. Please read more about how we collect and use data about you in this way in our Cookies Statement in our Privacy Policy. You can change your cookie settings in your browser at any time. ‘,
necessaryTitle: ”,
necessaryDescription: ”,
thirdPartyTitle: ‘Warning: Some cookies require your attention’,
thirdPartyDescription: ‘Consent for the following cookies could not be automatically revoked. Please follow the link(s) below to opt out manually.’,
on: ‘On’,
off: ‘Off’,
accept: ‘Accept’,
settings: ‘Cookie Preferences’,
acceptRecommended: ‘Accept Recommended Settings’,
notifyTitle: ‘Privacy Notice’,
notifyDescription: ‘This site uses cookies, pixels, and other similar technologies to improve your web site experience and to deliver you personalised ads about our own and third party products and services. Please read more about how we collect and use data about you in this way in our Cookies Statement in our Privacy Policy. You can change your cookie settings in your browser at any time. ‘,
closeLabel: ‘Save Preferences and Close’,
accessibilityAlert: ‘This site uses cookies to store information. Press accesskey C to learn more about your options.’,
rejectSettings: ‘Reject All’,
reject: ‘Reject’,
},
branding: {
fontColor: ‘#fff’,
fontFamily: ‘Arial,sans-serif’,
fontSizeTitle: ‘1.2em’,
fontSizeHeaders: ‘1em’,
fontSize: ‘1em’,
backgroundColor: ‘#313147’,
toggleText: ‘#fff’,
toggleColor: ‘#2f2f5f’,
toggleBackground: ‘#111125’,
alertText: ‘#fff’,
alertBackground: ‘#111125’,
acceptText: ‘#ffffff’,
acceptBackground: ‘#111125′,
buttonIcon: null,
buttonIconWidth: ’64px’,
buttonIconHeight: ’64px’,
removeIcon: false,
removeAbout: false },
necessaryCookies: ( ‘wordpress_*’,’wordpress_logged_in_*’,’CookieControl’,’PHPSESSID’,’fivc’,’fivs’,’fivp’,’Ookie’,’Fool_subinfo’,’_gads’,’_gid’,’_gat’,’_ga’,’__utma’ ),
optionalCookies: (
{
name: ‘Sharing’,
label: ‘I would like content tailored to my personal preferences.’,
description: ‘We work with advertising partners to show you ads of products and services you may be interested in. You can choose whether or not to have ads delivered in a personalised way by setting this option. You can return to review this setting at any time by clicking the "C" logo in the bottom left corner of any page.’,
cookies: ( ‘_ga’, ‘_gid’, ‘_gat’, ‘__utma’, ‘_gads’ ),
onAccept: function () {
// Add Facebook Pixel
!function(f,b,e,v,n,t,s)
{if(f.fbq)return;n=f.fbq=function(){n.callMethod?
n.callMethod.apply(n,arguments):n.queue.push(arguments)};
if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;
n.queue=();t=b.createElement(e);t.async=!0;
t.src=v;s=b.getElementsByTagName(e)(0);
s.parentNode.insertBefore(t,s)}(window,document,’script’,
‘https://connect.facebook.net/en_US/fbevents.js’);
fbq(‘init’, ‘901682110316659’);
fbq(‘track’, ‘PageView’);
fbq(‘consent’, ‘grant’);
// End Facebook Pixel
// Enable Google ad personalization
// gtag (‘set’, ‘allow_ad_personalization_signals’, true ) ;
},
onRevoke: function () {
fbq(‘consent’, ‘revoke’);
// Enable Google ad personalization
// gtag (‘set’, ‘allow_ad_personalization_signals’, false ) ;
},
recommendedState: ‘on’,
lawfulBasis: ‘consent’,
},
),
statement: {
description: ”,
name: ”,
url: ‘https://www.fool.co.uk/help/privacy-and-cookie-statement/’,
updated: ”
},
};
CookieControl.load(config);
