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A FTSE 100 share I’m buying for the stock market recovery

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Business development to success and FTSE 100 250 350 growth concept.
Business development to success and FTSE 100 250 350 growth concept.

Glencore (LSE:GLEN) is a FTSE 100 share with fingers in a lot of pies. It is a world-famous mining company and one of the biggest commodity traders in the world. It also happened to be ranked as the 48th biggest public company in the world by Forbes in 2020.

This sheer size probably had a hand in its weathering of, and hearty recovery from, the Covid-19 pandemic. On 23 March 2020, it hit a low of 112p per share. At the time of writing, it’s at 324p – that’s a 189% increase in a little over a year. A well-timed £3,000 investment would have seen profits edging towards £6,000 by now.

A promising investment

I also view the FTSE 100 share as a relatively safe investment. The fact that the company is so diversified makes it strong and resilient. For example, if zinc production in Canada dried up, the company would still be the biggest producer of copper in Africa. You get the idea. 

Promisingly, the FTSE 100 share has really started to tackle its debt issues in recent years. In the last six years is has reduced this by almost $15bn, with a drop from $17.5bn to $15.8bn between 2019 and 2020. It plans to reduce debt even further over the course of 2021, targeting $13bn.

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This comes just as rising expectations of inflation rocked the FTSE 100 this week. Glencore is in a good position here as its net debt to EBITDA ratio (earnings before inflation, tax, depreciation, and amortisation) is stable at less than 1.5. As such, it doesn’t have as much to worry about as FTSE 100 companies with more serious debt issues. 

This reduction of debt also allowed it to reinstate its dividend at a sustainable, if not overwhelmingly exciting, 1.3% yield. It isn’t exactly a life-changing amount of passive income, but it’s certainly better than nothing.

Furthermore, as the world slowly recovers, the need for commodities to support infrastructure plans should start to rise. At the same time, the price of some of the commodities Glencore supplies is skyrocketing. Copper prices, for example, hit an all-time high this week. This should help it continue to recover after a 34% fall in revenue last year.

The downsides

Of course, as with every share, Glencore has its downsides. As my colleague Harvey Jones says, the company is no longer undervalued like it was last year. He explains that the company is trading at about 28 times its earnings, which isn’t unreasonable. This doesn’t necessarily make for a bad investment, but it certainly isn’t the bargain it would’ve been in March 2020.

There is also the underlying risk of a single, game-changing disaster. A collapse in commodity prices could easily send Glencore spiralling back into masses of debt. It’s happened before, so certainly isn’t impossible.

It also has to comply with a variety of strict government regulations around the world that could lead to serious repercussions if broken. It was even accused of bribery towards the end of 2019 and faced allegations of ‘failure to prevent corruption’ in the Democratic Republic Of Congo in June 2020.

Still, I personally think that the positives outweigh the negatives in the case of this FTSE 100 share, so this is one on the short list for my portfolio.

The post A FTSE 100 share I’m buying for the stock market recovery appeared first on The Motley Fool UK.

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Dan Peeke has no position in any of the shares mentioned. 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.

Motley Fool UK 2021