Why the Glencore share price could be set to storm back against the FTSE 100
The performance of the Glencore (LSE: GLEN) share price in the last year has been relatively poor. The company has fallen in value by 8% at the same time as the FTSE 100 has risen by around 3%. This underperformance has come at a time when investors have been generally positive towards resources sector shares. As such, it makes the performance of Glencore even more disappointing.
Looking ahead, though, there could be scope for a successful turnaround. However, Glencore is not the only stock which looks cheap and that could outperform the FTSE 100 in the long run.
Reporting on Wednesday was property investment company CLS(LSE: CLI). It has a £1.9bn property portfolio in the UK, France and Germany, with its first-half performance being relatively upbeat. In fact, its net asset value increased by 3% during the period, while earnings per share grew by 15.1% to 6.1p. Net rental growth of 8.7% helped to boost the company's financial performance, while it recorded valuation gains across all of its regions.
Looking ahead, the company could benefit from a further reduction in the weighted average cost of debt that was achieved during the first half of the year. It is now 2.42% versus a previous figure of 2.51%. And with it having what appears to be a solid track record of growth, its future performance could be relatively resilient.
Despite this, CLS has what appears to be a low valuation. It trades on a price-to-book (P/B) ratio of just 0.9. This indicates that it has a wide margin of safety and may be able to perform well versus the wider index.
Also having a relatively low valuation at the present time is Glencore. Following its share price fall of the last year it now has a price-to-earnings (P/E) ratio of around 9.5. This indicates that it offers a wide margin of safety versus sector peers. And since it has a more diverse business model than many of its industry peers, it could be argued that the stock deserves to trade at a premium.
The recent update by Glencore showed that the company continues to move ahead with its strategy. It is seeking to become increasingly sustainable, so is seeking to reduce debt levels in order to provide it with less risk during more difficult periods for commodity prices. And with the company becoming increasingly efficient, its financial prospects appear to be improving.
With the global economy continuing to grow at a fast pace, the prospects for the company and its sector peers could be positive. Certainly, volatility could be high, with there being the potential for falls in commodity prices. But in the long run, a low valuation and an improving business model suggest that FTSE 100-beating potential is on offer. As such, now could be the right time to buy it.
Peter Stephens 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.