QUESTOR: THIS MINING GIANT IS FUTURE-PROOFING THROUGH ITS METAL PRODUCTION

Being a long-term investor in the stock market is becoming increasingly difficult. The seemingly endless amount of market “noise” emanating from other investors, sections of the media and companies themselves means that even the most ardent long-term shareholder is likely to feel compelled to trade stocks more frequently than they should.

In reality of course, long-term investors in the stock market should be relatively inactive. After all a buy-and-hold approach demands substantial research when initially seeking to unearth a high-quality company at an attractive price. 

But following its purchase, significant effort may not be required to ensure that a company is performing as expected, still offers relatively good value for money and does not represent an opportunity cost vis-à-vis other firms.

Questor first tipped mining company Glencore all the way back in July 2017. Since then we have provided readers with several updates on its performance and kept a close eye on the company’s major news releases.

However we have not switched the notional amount invested back and forth into other ‘opportunities’ as many investors typically would. Nor have we constantly obsessed about every single piece of information released about the firm.

This simple, long-term approach that seeks to buy and hold high-quality companies has produced a 52pc capital gain thus far. Over the same period, the FTSE 100 has risen by a rather measly 8pc

And with Glencore having paid dividends amounting to 41pc of our notional purchase price, its total return amounts to a relatively pleasing 93pc over the past seven years.

Encouragingly, the company’s overall performance remains sound.

Its latest quarterly update stated that production guidance for the full year is unchanged, while the annual profitability of its marketing segment is expected to be at the upper end of the company’s long-term guidance range.

The firm remains well placed to capitalise on the world’s ongoing pursuit of net zero. Its focus on the production of commodities that are widely used in renewable infrastructure and electric vehicles, such as copper, cobalt and nickel, aligns it with a likely rise in demand that should prompt higher prices over the coming years.

This column believes that an improving global economic outlook will bolster the pace of decarbonisation. Lower inflation that allows for monetary policy easing across the developed world should mean that a variety of major infrastructure projects become more viable.

A faster rate of economic growth should also provide greater scope for consumers to absorb potentially higher upfront costs that are associated with greener forms of transportation and heating, for example.

Meanwhile, Glencore’s financial position means it is sufficiently well placed to overcome temporary periods of economic instability that could realistically occur as interest rate changes take time to positively impact GDP growth. 

For example its net gearing ratio of 79pc is acceptable, while net interest cover of roughly four in its most recent financial year is also satisfactory. 

This provides scope for potential investments, such as the firm’s recent purchase of a 77pc stake in steelmaking coal business Elk Valley Resources. This boosts Glencore’s exposure to other longstanding global trends such as increased urbanisation and a rising global population, that are likely to prompt growing demand for steel.

Despite its aforementioned share price rise since our original recommendation, the company trades on a relatively modest valuation. Its current price-to-earnings ratio is around 11.5. This suggests that it continues to offer a margin of safety that provides scope for further capital gains over the long run.

Questor expects there to be periodic bouts of heightened financial and share price volatility in future. The company’s shares have already experienced significant volatility since our initial recommendation. 

Yet they have still produced a worthwhile return. The prospect of such periods should not act as a deterrent for long-term investors, since the company’s fundamentals remain sound.

Overall, Glencore is well placed to capitalise on a variety of long-term global growth trends that are likely to accelerate as the world economy’s performance improves. 

Its satisfactory financial position and low valuation suggest that its risk/reward opportunity remains sound. Therefore, it continues to offer investment appeal on a long-term view.

Questor says: buy

Ticker: GLEN

Share price: 476.05p

Read the latest Questor column on telegraph.co.uk every Sunday, Monday, Tuesday, Wednesday and Thursday from 8pm

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2024-07-09T19:03:44Z dg43tfdfdgfd