The very best days seem to be behind mining stocks for now. They were the dividend stars from among FTSE 100 stocks last year (and even now, their dividend yields are among the highest). But this year might not be quite as good as commodity demand eases. I have held all FTSE 100 miners in my portfolio for some time now, save BHP, which was just delisted from the London Stock Exchange anyway. They have all done well, and I am still invested in most of them, save one. I am talking about Glencore (LSE: GLEN).
Competitive market valuation
So why am I talking about it now? It so happens, that the miner is one of the newsiest stocks around today after it released an impressive set of earnings. This has led me to reconsider if I might want to buy it again. Consider this: one big reason why I sold it was that I just did not see enough upside to it at the time.
It has a price-to-earnings (P/E) ratio of around 35 times. This is way ahead of that of its mining peers. Rio Tinto, has a P/E of 6.7 times, for instance. And Anglo American is at 9 times. After its results, however, Glencore’s P/E has moderated to a little over 15 times, which makes it far more competitive again. Moreover, it is now less than the FTSE 100 average of 18 times. It also intends to return $4bn to shareholders through share buybacks. That is likely to push up its share price further, because a buyback reduces the number of shares in circulation.
Glencore hopes for resolution
I also like the fact that the company hopes to find a resolution to corruption and bribery charges it has faced in recent years. These held back the stock’s price even while other FTSE 100 miners did better before the pandemic. If it is able to move forward from these charges now, the I reckon its share price could see even better times ahead.
Why the FTSE 100 stock might still be overpriced
However, I do still wonder about how much the stock can rise. Even with the decline in P/E, it is still higher than its peers. So unless there is reason to believe that it could outperform them, the case for its share price increase weakens a bit considering this. Glencore is optimistic about the prices of the commodities it trades though, based on expected supply disruptions. But it does not say a whole lot about this in its update.
What I’d do
On the whole, I think there is a case for the Glencore share price to rise over time. Maybe not a whole lot in 2022, but it could still be a company to buy for the long term as a robust mining stock. This is especially so if it is indeed able to resolve its regulatory issues. I will quite likely buy it this year, possibly on a dip though.
Manika Premsingh owns Anglo American and Rio Tinto. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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