Freeport-McMoRan Copper & Gold (FCX), the world’s second largest producer of copper and a major producer of gold and molybdenum. The company recently diversified by acquiring two oil and gas producers, Plains Exploration & Production and McMoRan Exploration.
Freeport’s stock has been weak over the last couple of years as the prices of metals and other commodities have declined. We believe that the stock now represents a high quality way to play a likely rebound in copper and gold prices.
Most of the company’s reserves are of a high quality, allowing it to be a low-cost producer and generate strong margins. Moreover, Freeport’s recent diversification into oil and gas makes the stock something of an energy play as well, and should help to reduce its overall volatility.
Even if it takes a while for commodity prices to rebound, the generous dividend on the stock compensates you while wait.
George Putnam III, The Turnaround Letter, www.turnaroundletter.com, 617-573-9550
Here’s an update from The Value Bounce:
Reasons Freeport-McMoran (FCX) is moving upward and continues to be a buy:
Copper prices firming and beginning to form uptrend. China stockpile levels down significantly and copper prices appear to be turning upward
Operating numbers still positive. The cost of copper production at around $1 per pound, operating margins at 30%, ROE of 18.5%
Diversified portfolio and sizable reserves. In addition to Indonesia, Freeport has operations in South America, North America and Africa; worldwide reserves include 117 billion pounds of copper, 33 million ounces of gold, and 321 million ounces of silver.
Solid gold and copper production and sales. In the most recent quarter, gold sales were up 50% over comparable a year ago, the company also sold one billion pounds of copper, up 12%.
Insider buying. Freeport’s CEO is buying one million shares of FCX.
Acquisitions offer big upside and revenue diversification. Two significant oil & gas acquisitions in May and June of last year offer upside growth and will give FCX welcome diversification, company expects oil & gas segment to provide 25% or more of earnings in 2014
Buy FCX up to $40 with 15% trailing stop loss.
Carl Delfeld, The Value Bounce, www.thevaluebounce.com, 800-250-9657