Markets

Shares of Glencore plc: Love Them or Leave Them?

U.S. stocks are posting small gains on Tuesday, with the Dow Jones Industrial Average and the S&P 500 up 0.01%, and 0.17%, respectively, at 12 p.m. EDT.

Source: Glencore

Shares of Glencore plc : If you like 'em at $5 per share, you'll love 'em at $2.50. I think that statement holds, but there are plenty of caveats and qualifiers.

This column first mentioned Glencore plc on Aug. 20 as a possible aggressive value play. At the time, the miner-trader's ADRs had lost nearly half their value year to date and were trading at around $5.00.

Yesterday, they closed at $2.07, for a horrifying year-to-date loss of 76% (though the shares are rebounding somewhat today.)

While I would argue that decline is excessive and driven by sentiment rather than fact, just because a company's intrinsic value is generally much less volatile than its stock price does not mean it can't decline substantially over the course of a six weeks. Consider the value of Volkswagen AG today compared to a month ago, for example.

That's particularly true of a company that has a substantial trading operation: The confidence of your counterparties matters in the money-shuffling business.

Back in August, management understood that it had to address the market's loss of confidence forcefully; at the beginning of the month, the company announced a $10 billion program of measures to reduce its net debt by a third. One of them was a $2.5 billion equity capital raising (representing 10% of the company's existing equity) that was completed mid-month.

Manifestly, that hasn't been enough to prevent investors' loss of confidence from compounding, but sentiment may have bottomed yesterday (in the short term at least), as the market (over)reacted to an analyst note from Investec focused on the penalty that Glencore's debt load imposes on shareholders.

One of the authors, Hunter Hillcoat, said yesterday: "If commodity prices don't appreciate, where does that leave shareholders? At current spot prices, all else being the same, Glencore's equity value is zero."

However, it's worth pointing out that the analyst was referring to a scenario in which current spot prices become the norm; furthermore, he believes the shares offer value at their current price. I still do, too, but the risk of a permanent loss of capital has increased, and investors should expect plenty of volatility along the way.

This $19 trillion industry could destroy the Internet

One bleeding-edge technology is about to put the World Wide Web to bed. And if you act quickly, you could be among the savvy investors who enjoy the profits from this stunning change. Experts are calling it the single largest business opportunity in the history of capitalism... The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Don't be too late to the party -- click here for one stock to own when the Web goes dark.

The article Shares of Glencore plc: Love Them or Leave Them? originally appeared on Fool.com.

Alex Dumortier, CFA , has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More