Four Reasons FCX Is a Long-Term Bargain

 | Dec 11, 2012 | 10:00 AM EST
  • Comment
  • Print Print
  • Print
Stock quotes in this article:


Even from an early age, I have been a contrarian. Every time the crowd is swimming in one direction, I consistently find myself being pulled by instinct to want to swim the other way. Although this has not always the best inclination on a personal basis, I have found it has enhanced my investing returns over the years. Whenever a company announces an earnings miss, disappointing guidance or has a poorly received acquisition or other strategic move that crushes the stock, I find myself looking at the company's fundamentals to see if investors are overreacting. Frequently, I will start to build a position in the temporarily impaired stock and make good profits over the long term when sentiment eventually changes.

Freeport McMoRan (FCX) is a good example of a company that recently disappointed the market but whose value story remains intact. The company, which is one of the world's largest miners of copper and gold, decided to make two simultaneous acquisitions last week to get in to the energy E&P business. The stock lost 20% of its market capitalization in two days as the market gave its decision to spend $9 billion on these energy firms a loud Bronx cheer. Reasons cited include the company overpaid for the companies, the lack of cost savings and investors are disappointed by the company adding complexity to its business in these uncertain times.

I certainly agree with the consensus that the company probably overpaid for these acquisitions by around a billion dollars or so. I also would have preferred Freeport got some cost savings from these acquisitions. However, is knocking over $6 billion off Freeport's market value justified or is this a classic contrarian buying opportunity? Looking at the value metrics on FCX, I think the stock over corrected especially with the improving sentiment on Chinese economic growth recently.

Four reasons FCX is a long-term bargain at $32 a share

  1. The stock yields almost 4% (3.9%) which should put a floor under the stock.
  2. FCX is cheap at less than 7x forward earnings, especially if demand in China is rebounding. This is a significant discount to its five-year average (12.9).
  3. The stock is selling near the bottom of its five-year valuation range based on P/CF, P/S and P/B. The company has also beaten earnings estimates 11 of the last 12 quarters.
  4. The stock has good technical support in this price range (see the chart below).

Freeport McMoRan (FCX)

Source: Yahoo! Finance

Columnist Conversations

volatility is quite low here, and we could see some downsides here in the short term. ...
View Chart »  View in New Window »
this chart is showing great bullish signs here, we like this to take out the old high shortly. ...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.