Glencore (LSE:GLEN) is one of the largest commodity trading companies in the world. It has managed to avoid the broader negative stock market trend in 2022. In fact, the Glencore share price is up 37% over the past year, making it one of the best performing stocks in the FTSE 100. And I think that it can keep climbing — here’s why.
Outperforming in 2022
Volatility in commodity prices has been the main reason for outperformance for Glencore this year. In the half-year report, the company spoke of the “global macroeconomic and geopolitical events during the half [creating] extraordinary energy market dislocation, volatility, risk, and supply disruption”.
This might be taken as negative for some businesses. Yet all of the above were positive factors that helped propel adjusted EBITDA to a record $18.9bn for the period. This is an incredible amount to generate, up 119% on the same period last year.
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Coal and gas benchmark prices soared, allowing Glencore to benefit from selling at a much higher level than during 2021. The energy market issues have caused problems for companies in other sectors. But for those like Glencore that are associated with the extraction and production at the beginning, it has been a positive.
Some commodities haven’t simply gained value, but rather have gone up and down in price. As Glencore has the capacity to store and ship different goods, it has been able to profit from the volatility. For example, if Metal X fell 10%, it could buy some and hold it. Then if the price moved back higher, it could sell.
Room to go higher
At 494p, the share price is close to the highs of the year at 548p. Interestingly, if it can break this level, it would be the highest price since July 2011.
I think that this price could be seen by the end of this year. One reason for this is due to the drivers above that have ensured Glencore has enjoyed a strong year so far. Given the state of the global economy, along with the continued uncertainty around energy prices, volatility should remain high. I don’t see any reason why the business won’t be able to continue to deliver strong full-year results, surprising the market.
I think the stock could rally even more as excess profits get paid out in the form of dividends. The current dividend yield is 4.75%. This might not seem exceptional but the share price is rallying as well. If we see another generous payout, I think income investors could flock to buy Glencore shares.
The main risk to my view is that we see a material re-pricing lower of commodities such as oil, coal and natural gas. This could happen if we get a sudden resolution to the war in Ukraine, or if there’s large scale Government intervention. In such a case, Glencore could be caught off guard and suffer from lower prices.
I see this as unlikely in the near term and see little to stop the share price marching to fresh highs. Therefore, I’m looking to add the stock to my portfolio.
