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Glencore (LSE: GLEN) shares have been very positive recently. Currently, they are about 35% below their all-time high (set for early 2023). Are we looking at a great value stock after this fall? Let's talk.
A cheap stock?
At first glance, Glencore shares look cheap today. Currently, they trade at a price-to-earnings (P/E) ratio of 12.6, using a 2024 earnings forecast of 39.1 cents. And the P/E ratio falls to 10.1 using next year's earnings forecast. That's below the market average.
The thing is, with commodity companies like Glencore, P/E ratios are usually meaningless. That's because earnings (the 'E' in the P/E ratio) for these companies can fluctuate wildly.
When asset prices rise, income rises. However, if they go down, the income goes down. The problem is, commodity prices are known in a vague way.
The problem here is that Glencore derives part of its revenue and profit from commodity trading. So this adds a new element of uncertainty. The company not only relies on high commodity prices to generate strong profits and profits, but also relies on successful trading. And that is not guaranteed.
So in the end, it's very difficult to know if Glencore shares are offering much value right now.
Where is copper going next?
One thing we can be sure of, is that going forward the price of copper (Glencore's main asset) may have an impact on the company's earnings and share price. So investors really need to have a strong view on this stock if they are considering buying into Glencore.
Now, when I last covered Glencore a few months ago, everyone was excited about copper. At the time, its price was soaring due to excitement about the renewable energy revolution, electric vehicles (EVs), global data center construction, and defense spending.
However, since then, copper market dynamics seem to have changed significantly. Earlier this month, for example, BHP acknowledged in its annual commodity outlook that, due to weak demand from China, the copper market will be slightly oversupplied this year and even larger next year.
It is noteworthy here that commentators at Goldman Sachs they recently lowered their 2025 copper price target to $10,100 a tonne, saying the expected rally in the copper market is unlikely due to weakness in the Chinese spot market. A few months ago, they were predicting it would go as high as $15,000.
An Australian investment bank Macquarie it has reduced its copper vision recently. Last month, it said that tight supply and depressed demand had pushed the market higher than expected. It also said the market is expected to remain buoyant in 2025 and 2026 (expecting prices to drop to $8,000 per ton in 2026)
Best stocks to buy?
Given the uncertainty around copper, I won't be rushing to buy Glencore shares any time soon. For me, they are very unpredictable.
Of course, stocks can offer good returns when the copper market takes off. But I prefer to invest in companies that have reliable revenue and earnings, and are less speculative in nature.
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