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Is Now the Time to Buy Glencore International?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at Glencore International  (LSE: GLEN  ) to determine whether you should consider buying the shares at 361 pence.

I am assessing each company on several ratios:

  • Price/Earnings (P/E): Does the share look like a good value when compared against its competitors?
  • Price Earnings Growth (PEG): Does the share look like a good value factoring in predicted growth?
  • Yield: Does the share provide a solid income for investors?
  • Dividend Cover: Is the dividend sustainable?

So let's look at the numbers:

Stock Price 3-Year EPS Growth Projected P/E PEG Yield 3-Year Dividend Growth Dividend Cover
Glencore International 361p (60%) 8.6 0.2 2.9% N/A 3.5

The consensus analyst estimate for next year's earnings per share is $0.63 (43% growth) and dividend per share is $0.18 (13% growth).

Trading on a projected P/E of 8.6, Glencore appears to be valued at about the same level as its peers in the mining sector, which are currently trading on an average P/E of around 8.3.

Glencore's P/E and strong double-digit growth rate give a PEG ratio of around 0.2, which implies the share price is cheap compared to the near-term earnings growth the firm is expected to produce.

At 2.9%, Glencore's dividend income is just under the mining sector average of 3%. Unfortunately, Glencore has paid a regular dividend since only September 2011, so it is not possible for me to calculate a three-year dividend growth rate.

However, the dividend is around three-and-a-half times covered by earnings, giving Glencore plenty room for further payout growth.

Glencore looks cheap compared to its near-term growth
Glencore is one of the largest and most diversified commodity companies in the world and I believe the company is currently undervalued.

You see, unlike the majority of its peers in the mining sector, which rely on the production and sale of commodities, about half of Glencore's earnings actually come from the marketing of commodities. These marketing operations involve the buying, transportation and selling of commodities for other companies around the world, which can be a lucrative business with very little risk for Glencore.

Indeed, during 2012, when the majority of Glencore's peers faced falling earnings due to low commodity prices and rising production costs, Glencore's earnings from its marketing operations actually grew nearly 12%.

That said, the other half of Glencore's earnings are related to commodity production. However, once again Glencore has an advantage over its peers as only 46% of Glencore's earnings before interest and tax actually come from metal mining operations. The rest of Glencore's earnings come from the production of coal, oil and soft commodities such as wheat and sugar. Furthermore, Glencore is one of the world's biggest sugar and wheat distributors.

So overall, Glencore is not just any old mining company and I believe the company deserves to trade at a premium to its peers in the mining sector. So, all in all, I believe now looks to be a good time to buy Glencore International at 361 pence.

More FTSE opportunities
As well as Glencore International, I am also positive on the FTSE 100 share highlighted within this exclusive free report.

You see, the blue chip in question offers a 5.7% income, its shares might be worth 850 pence compared to about 700 pence now -- and it has just been declared "The Motley Fool's Top Income Stock for 2013"!

Just click here to read the report -- it's free.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.


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Related Tickers

9/27/2016 12:01 PM
GLEN $208.48 Down -1.27 -0.61%
Glencore CAPS Rating: No stars