Is the Glencore share price a bargain or should I buy this FTSE 100 growth share?
The recent performance of the FTSE 100 has been disappointing, with the index falling by around 800 points since reaching an all-time high in May. The performance of Glencore(LSE: GLEN) has been even more challenging. It has fallen by almost 20% in the same time period, with investors seemingly concerned about its financial outlook.
Could the mining major now offer an appealing value investing opportunity? Or could a FTSE 100 growth share which released an update on Friday provide a stronger risk/reward ratio?
The company in question is InterContinental Hotels(LSE: IHG). Its Q3 trading update highlighted the progress being made in delivering a number of strategic initiatives. Its international expansion of Kimpton Hotels & Restaurants is continuing, while voco is on track for more than 15 signings by the end of the year. It has also received the first signing for its recently relaunched Regent Hotels & Resorts brand.
During the quarter, the company’s net system size increased by 5.1%. Global revenue per available room (RevPAR) increased by 1%, with performance in the US being affected by strong previous year demand following the 2017 hurricanes.
Looking ahead, InterContinental Hotels continues to be optimistic about its future. The company experienced its strongest pace of signings and room openings for 10 years in the third quarter. It also announced a $500m special dividend. With the stock forecast to post a rise in earnings of 20% in the current year and its shares trading on a price-to-earnings growth (PEG) ratio of 1.2, it appears to offer an impressive investment outlook for the long term.
The near-term prospects for the Glencore share price could be relatively uncertain. The prospect of a global trade war could impact negatively on investor sentiment towards resources stocks, and may lead to the company’s share price coming under further pressure. In addition, the company faces regulatory risks, as well as potentially lower demand for commodities as a result of a rising US interest rate and the prospect of further strengthening of the US dollar.
The fall in the company’s share price, though, may factor in a number of these risks. It now trades on a price-to-earnings (P/E) ratio of around 9, and has a dividend yield of approximately 5.6%. These figures suggest that a margin of safety is now on offer, and this could mean that an investment opportunity has presented itself.
With Glencore having improved its balance sheet in recent years and strengthened its business model through a focus on its core operations, it now seems to be in a stronger position to deliver robust growth in the long run. While it may prove to be an unpopular share among investors, especially if the FTSE 100 continues to be volatile, in the long run it could deliver a successful recovery. As such, now could be the right time to buy it.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended InterContinental Hotels Group. 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.