Boxing isn’t everyone’s cup of tea. Two heavyweights slugging it out in order to be called a champion. Good money is wagered and spent on trying to predict the outcome of fights, with people analysing the key differences and strengths that each has against its opposition.
Fortunately, we can’t pitch two businesses into battle against each other like that, but we can analyse them side by side and make a judgement call on which can be termed the champ. In this case, I wanted to match up two commodity giants, BP (LSE: BP) and Glencore (LSE: GLEN). The two firms have similar businesses models and are in the same industry.
Therefore, if you had £1,000 to invest in your Stocks and Shares ISA, which one would I pick?
Reasons for BP
If you look at the year to date performances in the share price, BP looks a better option. It’s up marginally, around 1%. While this isn’t an amazing performance, it beats Glencore, which is actually down around 9.3% over the same period.
Switching to the dividend yield of both stocks, again BP comes out on top. It currently has a yield of around 6.3%, in comparison to Glencore’s 5.1%. This means that if you were to buy £1,000 worth of BP stock (and the dividend yield remained exactly the same) you would receive £63 per year, versus £51 from Glencore. This might not seem a huge difference, but if you’re investing larger amounts, or plan to hold the stocks for many years, this really does add up
Reasons for Glencore
Glencore has a stable leadership team and is currently run by Ivan Glasenberg. As my colleague Roland Head mused last month here, it’s unlikely he’ll want to step down before he’s turned the business around, mostly due to the fact that he has a heavily vested interest. Glasenberg owns an 8.7% stake in the business.
By contrast, there’s going to be change at the top of BP. CEO Bob Dudley, who has been in charge for around a decade, announced recently that he’s going to be standing down. Any change at such a senior level presents a risk for shareholders, depending on the new strategy employed.
Further, Glencore may be able to provide better future returns due to the sensitivity is has to metal pricing. While BP is focused mostly on oil and gas, Glencore trades with a much broader reach, including copper, cobalt and zinc. Falling prices have hurt it this year, but it has taken the step to cut loss-making areas. Added to this are some analysts’ bullish forecasts on copper for 2020.
If we do see a rebound in commodity prices, then I expect Glencore to benefit much more than BP.
Overall, if we look back over the past year, it would have made sense to buy into BP. However, looking forward, I believe that Glencore offers the chance of greater share price appreciation from the current levels.
Jonathan Smith and 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.
Motley Fool UK 2019