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He Glencore (LSE: GLEN) share price has fallen on hard times as the slowdown in the Chinese economy hits commodity stocks across the board. He FTSE 100 Miner shares are down 5.56% in one year and 22.17% in two.
Natural resources is a notoriously cyclical sector and is currently out of favor. During the glory years of the Chinese economic miracle, when Beijing reported double-digit growth year after year, the country consumed 60% of the world's metals and minerals production.
Can these FTSE 100 stocks bounce back?
With the country slowing sharply and repeated stimulus packages failing, demand remains stagnant. Joe Biden's Inflation Reduction Act has boosted US demand, but Europe is struggling.
I like to buy out-of-favour stocks and tried to take advantage of Glencore's problems by buying its shares twice last year. In July 2023 I paid 472.6p per share and three months later I averaged 428.9p.
With the shares falling to 408p, my holding is down 10%. In a sense, that's neither here nor there. I buy stocks with a long-term view, aiming to hold them for a minimum of five to ten years and, ideally, decades. Short-term setbacks don't matter.
It's particularly important to be patient when deliberately targeting underperforming stocks, as I have been doing. Transforming a business is not an overnight task, although a good old-fashioned commodities boom would help, or better yet, a commodities supercycle.
The group's first-half adjusted EBITDA profits fell 33% to $6.3 billion. “in the context of lower average prices for many of our key products during the period, particularly thermal coal”as the board put it.
It still has a lot of dividend potential.
The good news is that Glencore is still generating considerable amounts of cash, even after funding $2.9 billion in net capital expenditures and $1 billion in shareholder returns. That allowed it to reduce net debt from $4.9 billion to $3.6 billion in six months.
The board also waved a carrot at investors tempted to exit the bailout, saying cash generation “It bodes well for potential additional returns to shareholders, above our base cash distribution, in February 2025.”.
If I needed an incentive to hold out during the current bear cycle, that would be it, but I don't. Glencore shares look decent value today, with a price-to-earnings ratio of 12. The 15 analysts offering one-year share price forecasts have set an average target of 555p.
If correct, that would mark a 23.59% increase over the current price. That's something else to look forward to. Forecasts are not guaranteed, of course, and we probably need a global economy for Glencore to grow.
The trailing yield is now just 2.47%, down from more than 5% when I bought the stock. So I hope the board actually delivers on those. “Complementary returns for shareholders” in February.
I'm not very optimistic, but there's no way it's going to sell. When stocks recover, they tend to do so out of nowhere. In the meantime, patience is required. Plus, there's no point in selling a cyclical stock when it's down. I won't be buying any more Glencore shares (I have a fairly large stake), but I will hold this one. Better days should come.
