Stock investing is all about the future — a share gives you part-ownership of a company and a right to future shareholder returns. Businesses focused on Covid-19 — such as vaccine and testing providers — have done well over the last year. But I’m looking elsewhere for new opportunities.
One area where I’m looking for long-term investments is renewable energy. The FTSE 100 share I’m looking at today is already one of the world’s largest suppliers of key raw materials for the electric power industry. It’s a stock I’m considering buying for my own portfolio as a long-term investment.
Essential materials
Mining and commodity trading group Glencore (LSE: GLEN) hasn’t always been a business I’d associate with environmental concerns. But things are changing, according to long-time chief executive Ivan Glasenberg.
Glasenberg has already handed in his notice, but not before kickstarting a programme of change aimed at getting Glencore to become a net zero emissions company by 2050.
The group plans to phase out coal production and focus its efforts on copper, cobalt, and nickel. These materials are essential for electric vehicles, renewable energy infrastructure and battery storage. Glencore expects demand to grow for many years.
Alongside this change in focus, the company plans to make changes needed to reduce its own emissions and offset those it cannot eliminate.
Stock investing: long-term growth opportunity?
Investors are buying into Glencore’s new strategy. Glencore’s share price has risen by 65% in six months and is 25% higher than one year ago, despite the impact of Covid-19. This performance has also been helped by a strong recovery in commodity prices since last year’s crash.
Glencore’s adjusted operating profit rose by 6% to $4,416m last year. Cash generated by the group’s operations also rose, while net debt fell. This sold performance has allowed the group to resume dividend payments and shareholders are set to enjoy a payout of $0.12 per share. That’s equivalent to a yield of about 3% at current prices.
The company is reporting a strong start to 2021 and expects a strong year as the pandemic starts to recede. Brokers expect Glencore’s underlying earnings to double this year. That prices the stock at around 11 times forecast earnings, with a dividend yield of 3.6%.
What could go wrong?
When stock investing, I try to spend plenty of time looking for potential problems. My view is that if I can avoid big losses, then my profits will take care of themselves.
In Glencore’s case, the main risk I can see is that my timing is wrong. An economic downturn after the coronavirus pandemic could cause miners’ profits to slump.
Right now, no-one really knows how strong the global economy will be after the pandemic. One possible view is that infrastructure spending in markets such as the US and China will help boost demand and return major economies to growth. This would be good for Glencore and its peers.
Another possibility is that when government support measures come to an end, we’ll see a widespread economic slowdown. This would probably be bad news for Glencore.
I don’t know exactly what the future holds but, on balance, I don’t think Glencore shares look expensive at the moment. I also expect a return to growth at some point in the next few years, if not immediately. I’d be willing to buy this FTSE 100 stock at current levels.