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Freeport-McMoRan Copper & Gold Inc. (FCX): Will This Copper Stock Shine Again?

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Copper mining stocks have been experiencing a sell-off of late as macroeconomic worries have spooked some investors. However, fundamentals seem strong and prospects might not be as bleak as the market seems to believe they are.

Those looking for stock bargains amidst a bull market should perhaps consider copper mining stocks like Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX). The company is one of the world’s biggest mining players, focused on copper, gold, and molybdenum production.

Freeport-McMoRan Copper & Gold Inc.

Valuation metrics

With regards to valuation, the stock currently looks cheap: With a P/E of only 10.46, it is below the industry’s average, and also below its main competitor, Southern Copper Corp (NYSE:SCCO), which trades at a P/E of 16.18.

When factoring in future earning estimates, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) becomes even more attractive, as it currently trades at a forward P/E of just 6.99, also beating Southern’s 13.37. When factoring in growth, however, Freeport’s PEG of 3.49 pales in comparison with Southern’s 0.96.

A similar situation occurs when looking at ROE figures: Southern’s 44% beats Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)‘s 18.33%. However, the story changes again if one focuses on the P/B ratio, as Freeport’s 1.81 clearly beats Southern Copper’s 6.55. All in all, Freeport looks undervalued based on past/future earnings and book value, more so than Southern Copper.

However, Southern seems to have better growth prospects, and significantly better ROE (ttm) figures. When comparing the stock to Rio Tinto plc (ADR) (NYSE:RIO), Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) beats it in current P/E, ROE, P/B, and PEG, but Rio does have a slight edge in Forward P/E.

Analyst ratings

Wall Street analysts seem to favor Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) over Southern Copper. Freeport currently has an average recommendation of 2.20 (overweight-hold), while Southern has a 3.20 (hold-underweight) rating. With regards to price targets, Freeport currently has an average target price of $40.29, which implies that the stock has an almost 21% upside potential from current levels.

Southern Copper has an average price target of $41.24, implying an upside of less than 10%. Rio seems to be the most liked by analysts of the three, as it has an average recommendation of 1.30 (buy-overweight), and an average price target of $73.20, which implies the stock has an upside potential of almost 60%.

Dividend

Freeport also pays an attractive dividend of $1.25/share, which works out to a yield of 3.75% (compared to Southern Copper’s 2.60%, or Rio’s 4%). Freeport has paid a dividend to its shareholders since 1995. However, the company scrapped its dividend from 1999 to 2002, and did so again during the the financial crisis in 2009.

P/E Fw P/E PEG P/B ROE Avg PT (%implied upside) Avg Rec Div Yield
FCX 10.46 6.99 3.49 1.81 18.33% $40.29 (+20.77%) 2.20 3.75%
SCCO 16.18 13.37 0.96 6.55 44.07% $41.24 (+9.42%) 3.20 2.60%
RIO N/A 6.24 N/A 1.83 -6.06% $73.20 (+56.7%) 1.30 4.02%
Edge FCX RIO SCCO FCX SCCO FCX RIO RIO

Momentum & price movements

Freeport has been lagging behind this year. In fact, Freeport’s stock has dropped more than 3% so far this year. It is currently almost 23% below its 52-week high of $42.93, and only 9.46% above its 52-week low of $30.27. The stock is also far from its historical highs of 2008 or 2011, when it reached $60/share; but is also comfortably above its 2008 lows of $8.40.

So, while in 2008 and 2009 Freeport performed fabulously (albeit coming from the drastic financial crisis lows), the stock cooled off in 2011, and has been under-performing the market of late. Momentum is therefore not on Freeport’s side, but that could signal a buying opportunity for those contrarian investors who might be trying to find bargains in a bullish market.

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