Shares inGlencore (LSE: GLEN),Vedanta Resources (LSE: VED) andLonmin (LSE: LMI) have had an incredibly rough six months. Indeed, these companies have seen the value of their shares fall by more over the past six months than at any other time in the last 10years, barring the financial crisis.
These declines have attracted bargain hunters who sense that the selling could be overdone and are willing to take a risk, in the hope of big profits, by taking a position. However, here at the Motley Fool, were long-term investors. We look for financially stable companies that we can buy and hold, without having to babysit.
With this in mind, todayIm taking a look at Glencore, Vedanta and Lonmin from a long-term perspective to try and establish if these companies really are attractive after recent declines.
Looking to thefuture
Over the years, Lonmin has raised hundreds of millions in new equity from shareholders and almost all of this has been spent with little to show for it. As a result, Lonmins shares deserve to trade at a discount to book value and should be avoided. At present, Lonmins trade at a price-to-book value of 0.21. Over the past six years, Lonmins book value per share has shrunk by 17.2% per annum and this trend looks set to continue.For this reason, Lonmin looks like a poor long-term investment.
Trying to value Glencore is tough. The companys trading division is something of a black box and even the Citys top analysts cant figure out what goes on inside the trading arm. Glencores management doesnt provide much information on the division either, so when youre trying to value the company, theres a certain amount of guesswork involved.
Usually, this would lead me to avoid the company. However, Glencore is majority-owned by its founders, traders and managers and for this reason, the company could be a great long-term investment. Businesses that are majority-owned by their workers usually tend to outperform peers. That said, Glencore still has a mountain of debt to deal with, so the company may not be for everyone.
Operationally, Vedanta has many similarities to Glencore. The companys founders own a majority stake, the Vedanta group is extremely complex, and the business has a high level of debt. So, how should investors look at the company?
Well, according to one set of City analysts Vedanta is said to remain lossmaking until 2019, and this could put immense pressure on the groups finances. Of course, if commodity prices rally, the companys outlook will change significantly. But with three years of losses ahead, Vedantas outlook is extremely uncertain. With this being the case it might be wise for investors to avoid the company for the time being.
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