Robert Stephens, CFA, discusses the investment prospects of two unloved shares – Real Estate Investment Trust British Land and miner Glencore.
The FTSE 100 may have risen by 8% so far this year, but there are still blue-chip shares that trade on exceptionally low valuations. In many cases, they face uncertain futures; hence their current discounts to intrinsic value. However, they may have sufficient growth catalysts to deliver successful recoveries in the long run.
Among them are commercial property real estate investment trust (REIT) British Land (LON:BLND) and diversified mining company Glencore (LON:GLEN). Although potentially volatile in the short run, I think both stocks could offer investment appeal over the long term.
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Even though the British Land share price may have gained 5% in 2019, the company still trades well below net asset value. It has a price to book ratio of 0.6, which suggests there could be scope for a significant rise in its share price over the next few years.
The company’s recent results highlighted the challenges it is facing in the retail sector. Structural changes to the industry, in terms of shoppers favouring online versus in-store shopping, may continue and lead to reduced demand at its various locations.
In response, the company is seeking to reshape its retail portfolio, which will see it gradually become a smaller part of the business. It will also focus on building an increasingly mixed-use business that seeks to increase its exposure to residential properties through the growing build-to-rent sector. Office space will be focused on London campuses, which include retail and leisure offerings.
Alongside changes in the retail sector, Brexit is weighing on the wider commercial property industry. This may cause investor sentiment to remain weak until the process of leaving the EU is resolved.
However, with a 5.6% dividend yield and a diverse range of properties within its portfolio, British Land could be a worthwhile value investing opportunity for the long term.
Mining company Glencore is an unpopular FTSE 100 stock at the moment, having fallen by 20% in the last month. Investors seem to be cautious about the stock due to multiple investigations into alleged corruption which could be ongoing for some time.
Following its stock price fall, Glencore now trades on a P/E ratio of just 7. This suggests that it could offer good value for money ahead of what may prove to be a period of improving financial performance.
Electric vehicles are still relatively uncommon, but forecasts for increasing demand could lead to a significant tailwind over the long run for the business. In fact, between now and 2030, sales of electric vehicles are forecast to grow at a compound annual growth rate of over 30%. This could mean that there is an increase in demand for the raw materials used to produce them, such as copper, nickel and cobalt.
With Glencore in the process of ramping-up production of those three commodities, its financial performance could improve significantly. Although the outcome of the various investigations into the company is a risk facing investors, its potential rewards in the long run could be appealing.