In this article, we will look at 10 undervalued stocks in Ken Fisher’s 2022 portfolio.
Ken Fisher has been a value investor ever since he entered the world of stock investing. In the 1980s, he explored the use of price-to-sales ratios as an indicator to determine value stocks. Then in the late 1990s, he evolved his approach and experimented with PE ratios to identify value stocks and studied stock returns of companies belonging to six different categories, namely: large-cap value, mid-cap value, small-cap value, large-cap growth, mid-cap growth, and small-cap growth. Mr. Fisher put forth his beliefs about the long-term performance of growth and value stocks in a Youtube video on his channel. He believes that growth and value stocks tend to generate, more or less, the same amount of returns in the long term. Moreover, this March, Ken Fisher talked about the optimal time to own growth and value stocks and when they tend to perform better. Mr. Fisher said:
“There’s a time when value does better, a time when growth does better. Typically early in a stock market cycle off the bottom, following a bear market, value stocks tend to lead. Typically late in a bull market, before it peaks, growth stocks tend to lead.”
What Ken Fisher Thinks: Rate Hikes, Capitulation, and The Bear Market
Ken Fisher is known to be a contrarian and on June 15 in an interview with Fox News, he shared his views on the issued rate hikes by the Fed, the current bear market, and whether or not the stock investing world runs a fear of capitulation. Mr. Fisher believes that the rate hikes by the Fed will be insignificant to price volatility in the stock market. Furthermore, he responded to the risk of capitulation by adding that he and his 115,000 clients worldwide are not thinking of getting out of the stock market. Mr. Fisher sees the market in gridlock and reportedly said:
“You can’t go anywhere. If you think about it, long bonds are negative in this period. Inflation’s up, you’re going to go to cash, you’re going to go to bonds. Gold hasn’t had any glitter. You really don’t want to go into residential real estate because it’s been so pricey. You can’t go into foreign currencies since the dollar’s been so strong all-year-long, and you know, who are you gonna call?”
Mr. Fisher then referred back to historical bear markets and added that he believes, as per his average estimates, the market will rebound in less than a month. Mr. Fisher believes as long as the Fed does not do anything “too extreme”, the U.S. does not run the risk of creating a recession. Moreover, Ken Fisher explained that the inflation period of the 1970s had a slow and gradual build-up, starting from the 1950s. Fisher thinks that inflation was significantly low up till 2021 and has been skyrocketing in 2022, partly fueled by the supply-chain problems which will eventually unwind.
Fisher Asset Management’s Recent Portfolio
In the first quarter of 2022, Fisher Asset Management initiated 99 positions, sold out of 89 companies, bought additional shares of 442 companies, and sold some shares of 385 companies. Fisher Asset Management has a diverse portfolio with investments in Technology, Healthcare, Services, and Basic Materials segments.
As of Q1 2022, Ken Fisher manages $169.49 billion in 13F securities through his hedge fund, Fisher Asset Management. The fund has a top 10 holdings concentration of 31.34%. Among Fisher Asset Management’s top 13F holdings we have Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Amazon.com, Inc. (NASDAQ:AMZN).
Ken Fisher of Fisher Asset Management
Our Methodology
To narrow down 10 undervalued stocks in Ken Fisher’s 2022 portfolio, we scoured Fisher Asset Management’s Q1 2022 investment portfolio and looked for low PE stocks. We picked stocks that had a price-to-earnings ratio of less than 15 and ranked them in increasing order of Fisher Asset Management’s stakes in them. We have also included the hedge fund sentiment and analyst rating for each stock.
Undervalued Stocks in Ken Fisher’s 2022 Portfolio
10. Morgan Stanley (NYSE:MS)
Fisher Asset Management’s Stake Value: $941,235,000
Percentage of Fisher Asset Management’s 13F Portfolio: 0.55%
PE Ratio as of June 14: 9.95
Number of Hedge Fund Holders: 61
In addition to being undervalued, Morgan Stanley (NYSE:MS) pays dividends as well. As of June 14, Morgan Stanley (NYSE:MS) has a forward dividend yield of 3.72% and a PE ratio of 9.95. On May 3, Oppenheimer analyst Chris Kotowski upgraded Morgan Stanley (NYSE:MS) to Outperform from Perform with a $111 price target. The analyst noted that loan growth and interest rate hikes are beneficial for banks, and can help the banking industry navigate well through a possible recession. The analyst views an upside of over 30% for Morgan Stanley (NYSE:MS) in the next 12 to 18 months.
On April 14, Morgan Stanley (NYSE:MS) released earnings for the fiscal first quarter of 2022. The company reported earnings per share of $2.06 and beat Wall Street expectations by $0.34. Moreover, the company generated a revenue of $14.80 billion, down 5.84% year over year, but exceeded estimates by $1.05 billion.
At the close of Q1 2022, 61 hedge funds were long Morgan Stanley (NYSE:MS) with stakes worth $3.25 billion. Of these, Fisher Asset Management’s stakes were valued at $941.23 million. Fisher Asset Management is the second-largest shareholder in Morgan Stanley (NYSE:MS) and the investment covers 0.55% of Ken Fisher’s 13F portfolio.
Here is what Artisan Partners had to say about Morgan Stanley (NYSE:MS) in its “Artisan Value Fund” third-quarter 2021 investor letter:
“MorganStanley, a leading global financial services company, came into the portfolio in late 2020 as a result of its purchase of E*TRADE. The acquisition is a great fit for Morgan Stanley’s wealth management platform and provides a considerable amount of non-interest-bearing deposit funding. James Gorman, chairman and CEO, has steadily derisked the business by adding less volatile fee streams to complement its leading positions in cyclical businesses such as advisory, equities and FICC (fixed income, currencies and commodities). We believe the company will prove its resiliency and value over the long term.”
Fisher Asset Management has stakes in both growth and value stocks. Some of the fund’s top growth stock picks include Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Amazon.com, Inc. (NASDAQ:AMZN).
9. Novartis AG (NYSE:NVS)
Fisher Asset Management’s Stake Value: $953,933,000
Percentage of Fisher Asset Management’s 13F Portfolio: 0.56%
PE Ratio as of June 14: 13.42
Number of Hedge Fund Holders: 21
Novartis AG (NYSE:NVS) operates as a healthcare company worldwide. At the end of the first quarter of 2022, 21 hedge funds held stakes in Novartis AG (NYSE:NVS). The total value of these stakes amounted to $1.84 billion, down from $1.88 billion in the previous quarter with 25 positions.
On June 6, Novartis AG (NYSE:NVS) disclosed data for its phase 2 trial of Tafinlar and Mekinist, the company’s drug combination to treat brain cancer in children. The company announced successful results from the trial, noting that its drug combination reduced the risk of brain cancer and its complications by over two-thirds as compared to traditional chemotherapy. The company had over 100 subjects, aged between 1 and 17 years old, and found the overall response rate for its drug combination to be 47%, outperforming chemotherapy’s ORR of 11%.
This May, Morgan Stanley analyst Mark Purcell raised his price target on Novartis AG (NYSE:NVS) to CHF 94 from CHF 90 and maintained an Equal Weight rating on the shares.
In the first quarter of 2022, Fisher Asset Management raised its stakes in Novartis AG (NYSE:NVS) by 5%, bringing them to $953.93 million. Fisher Asset Management is the largest shareholder in the company, and the investment covers 0.56% of Ken Fisher’s 13F portfolio. As of June 14, Novartis AG (NYSE:NVS) has a forward PE ratio of 13.42 and a dividend yield of 4.03%.
8. Merck & Co., Inc. (NYSE:MRK)
Fisher Asset Management’s Stake Value: $970,824,000
Percentage of Fisher Asset Management’s 13F Portfolio: 0.57%
PE Ratio as of June 14: 11.50
Number of Hedge Fund Holders: 84
Merck & Co., Inc. (NYSE:MRK) operates as a healthcare company worldwide. The company has two business segments: Pharmaceutical and Animal Health. In Q1 2022, Fisher Asset Management increased its stakes in Merck & Co., Inc. (NYSE:MRK) by 4%. As of March 31, Fisher Asset Management’s stakes in the company are valued at $970.82 million and the fund is the top shareholder in the company as well.
On April 28, Merck & Co., Inc. (NYSE:MRK) announced earnings for the first quarter of fiscal year 2022. The company registered an EPS of $2.14, beating expectations by $0.31. The company’s revenue came in at $15.90 billion, up 31.63% year over year, outperforming market consensus by $1.25 billion.
This April, Barclays analyst Carter Gould raised his price target on Merck & Co., Inc. (NYSE:MRK) to $97 from $94 and reiterated an Overweight rating on the shares.
In addition to being an undervalued company, Merck & Co., Inc. (NYSE:MRK) is a dividend payer as well. As of June 14, the stock has a forward PE ratio of 11.50, a dividend yield of 3.25%, and on top of this, has gained 11.62% over the past twelve months.
At the close of the first quarter of 2022, 84 hedge funds disclosed ownership of stakes in Merck & Co., Inc. (NYSE:MRK). The total value of these stakes was estimated to be $5.86 billion, up from $3.78 billion in the preceding quarter with 80 positions. The hedge fund sentiment for the stock is positive.
ClearBridge Investments, an investment management firm, mentioned Merck & Co., Inc. (NYSE:MRK) in its “Sustainability Leaders Strategy” fourth quarter 2021 investor letter. Here is what they said:
“Other pharma companies are providing solutions as well. Merck’s antiviral pill molnupiravir is less effective than Pfizer’s, but it will be a helpful alternative for patients who cannot take Pfizer’s due to drug-drug interactions. Merck is also helping to manufacture Johnson & Johnson’s COVID-19 vaccine, which has less stringent storage requirements than the mRNA vaccines do.”
7. Goldman Sachs Group, Inc. (NYSE:GS)
Fisher Asset Management’s Stake Value: $1,047,572,000
Percentage of Fisher Asset Management’s 13F Portfolio: 0.61%
PE Ratio as of June 14: 7.56
Number of Hedge Fund Holders: 71
On April 14, Goldman Sachs Group, Inc. (NYSE:GS) released earnings for the first quarter of fiscal year 2022 in which it beat both EPS and revenue expectations. The company generated a revenue of $12.93 billion, down 26.95% year over year, but beat market estimates by $1.17 billion. The company’s EPS for the quarter was reported to be $10.76, ahead of expectations by $1.78.
This May, Oppenheimer analyst Chris Kotowski lowered his price target on Goldman Sachs Group, Inc. (NYSE:GS) to $519 from $546 but maintained an Outperform rating on the shares.
On June 2, Goldman Sachs Group, Inc. (NYSE:GS) announced that it expects its consumer revenues to hit $4 billion in 2024. The company’s strong revenue view stems from improvements in its Consumer & Wealth Management and Consumer Banking segments in the first quarter of 2022.
As of June 14, Goldman Sachs Group, Inc. (NYSE:GS) has a forward PE ratio of 7.56 and a dividend yield of 2.82%.
At the end of Q1 2022, 71 hedge funds disclosed ownership of stakes in Goldman Sachs Group, Inc. (NYSE:GS). The total value of these stakes was $4.59 billion. Of these, $1.04 billion were of Fisher Asset Management, the second-largest shareholder in the company. The investment covers 0.61% of Ken Fisher’s investment portfolio.
Here is what investment management firm, Ariel Investments, had to say about Goldman Sachs Group, Inc. (NYSE:GS) in its “Ariel Focus Fund” fourth quarter 2021 investor letter:
“Rising interest rates, after a surprisingly long period of low absolute rates and negative “real” rates, will create a headwind. While there has been much debate about the cause of these low rates, we believe the most important factor has been the $120 billion in monthly federal reserve open market bond purchases and the accumulation of an $8 trillion balance sheet. The former will end, and the latter will shrink. It is not just the Fed that has aggressively purchased bonds, bidding up prices and lowering yields. Bond traders and hedge fund managers have added to positions, confident that being on the same side as the Fed was the wise place to be. Now as the Fed is about to become a seller of bonds rather than a buyer, Wall Street’s “smart money” is likely to follow suit. Against this backdrop, fixed income securities and bond substitutes such as high dividend paying utilities and absolute return hedge funds are substantially overpriced and are not likely to produce attractive returns going forward.
This expectation of a reversion to the mean for interest rates helped 2021 performance, though not as much as we had hoped. The yield on the U.S. 10-year Treasury did indeed increase from +0.92% at the beginning of the year to +1.52% at year-end. An underreported story was the poor performance of bonds last year. The Barclays Aggregate Index declined -1.67% for the year ending December compared to a return of +28.71% for equities as measured by the S&P 500. Interest rates have continued to climb in 2022 with the 10-year Treasury at +1.79% as we go to print. This move higher in rates has contributed to our good, early start to 2022. The Goldman Sachs Group, Inc. (GS) jumped +47.59% for the year and +1.73% in the quarter.”
6. JPMorgan Chase & Co. (NYSE:JPM)
Fisher Asset Management’s Stake Value: $1,057,855,000
Percentage of Fisher Asset Management’s 13F Portfolio: 0.62%
PE Ratio as of June 14: 10.21
Number of Hedge Fund Holders: 110
On May 24, Societe Generale analyst Andrew Lim upgraded JPMorgan Chase & Co. (NYSE:JPM) to Buy from Hold and raised his price target to $150, up from $145. The analyst noted that JPMorgan Chase & Co. (NYSE:JPM) delivered positive guidance on net interest income, credit quality, and investment bank trading revenues on its investor day, which was held on May 23.
On May 26, JPMorgan Chase & Co. (NYSE:JPM) reported that it has started experimenting with blockchain technology and is using it for collateral settlements. On May 20, two of the bank’s entities transferred digitized BlackRock money market fund shares as collateral on its blockchain network. JPMorgan Chase & Co. (NYSE:JPM) said that if this application is scaled enough, investors can leverage a wider range of assets as collateral and trade them outside of market operating hours.
JPMorgan Chase & Co. (NYSE:JPM) is undervalued and is also a dividend payer, having been consistent with growing its dividends for almost a decade now. As of June 14, the stock has a forward price-to-earnings ratio of 10.21 and a dividend yield of 3.45%.
By the end of the first quarter of 2022, 110 hedge funds were long JPMorgan Chase & Co. (NYSE:JPM) with stakes worth $5.05 billion. Of these, $1.05 billion were of Fisher Asset Management, the largest shareholder in the company.
Like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Amazon.com, Inc. (NASDAQ:AMZN), Fisher Asset Management has sizeable stakes in JPMorgan Chase & Co. (NYSE:JPM), which makes up 0.62% of its investment portfolio.
ClearBridge Investments mentioned JPMorgan Chase & Co. (NYSE:JPM) in its “Large Cap Value Strategy” fourth-quarter 2021 investor letter. Here is what the firm said:
“Our energy and financials holdings kept pace in the 2021 rally. In financials, JPMorgan benefited from strong economic growth, a rise in Treasury yields, and a benign credit environment.”
5. Chevron Corporation (NYSE:CVX)
Fisher Asset Management’s Stake Value: $1,071,589,000
Percentage of Fisher Asset Management’s 13F Portfolio: 0.63%
PE Ratio as of June 14: 9.80
Number of Hedge Fund Holders: 53
As of March 31, Fisher Asset Management owns 6.58 million shares of Chevron Corporation (NYSE:CVX), which brings the fund’s stakes in the company to $1.07 billion. The investment covers 0.63% of Ken Fisher’s 13F portfolio.
On April 29, Chevron Corporation (NYSE:CVX) announced earnings for the fiscal first quarter of 2022. The company reported earnings per share of $3.36 but missed expectations by $0.08. The company reported a revenue of $54.37 billion for the quarter, up 69.76% year over year, ahead of expectations by $812.65 million.
This June, Credit Suisse analyst Manav Gupta raised his price target on Chevron Corporation (NYSE:CVX) to $202 from $190 and maintained an Outperform rating on the shares.
As of June 14, Chevron Corporation (NYSE:CVX) has returned 51.90% to investors over the past twelve months and has a forward PE ratio of 9.80, along with a dividend yield of 3.39%.
At the close of Q1 2022, 53 hedge funds were long Chevron Corporation (NYSE:CVX) with stakes worth $27.99 billion. This is compared to 53 positions in the preceding quarter with stakes worth $6.50 billion.
Here is what ClearBridge Investments had to say about Chevron Corporation (NYSE:CVX) in its recently published “Large Cap Value Strategy” first-quarter 2022 investor letter:
“The energy sector, which led a strong market in 2021, generated even more dramatic relative performance in the quarter, advancing 39% and leading the benchmark Russell 1000 Value Index. Years of restrained investment in the energy sector, combined with a strong post-pandemic recovery, contributed to the higher commodity prices. The upward pressure escalated with the Russian invasion of Ukraine. Our energy holding Chevron (NYSE:CVX) benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
4. Shell Plc (NYSE:SHEL)
Fisher Asset Management’s Stake Value: $1,076,420,000
Percentage of Fisher Asset Management’s 13F Portfolio: 0.63%
PE Ratio as of June 14: 5.68
Number of Hedge Fund Holders: 37
On May 5, Shell Plc (NYSE:SHEL) released earnings for the first quarter of fiscal year 2022. The company generated a revenue of $84.20 billion, up 51.27% year over year, and outperformed expectations by $39.36 billion. Shell Plc (NYSE:SHEL) reported earnings per share of $2.40 for the quarter, ahead of expectations by $0.21.
This June, Credit Suisse analyst Amy Wong initiated coverage of Shell Plc (NYSE:SHEL) with an Outperform rating and a 3,000 GBP price target, labeling the company as her top pick in the European integrated energy market.
As of June 14, Shell Plc (NYSE:SHEL) has gained 55.87% over the past twelve months and has a PE ratio of 5.68, along with a trailing twelve-month dividend yield of 1.75%.
In the first quarter of 2022, Fisher Asset Management went long in Shell Plc (NYSE:SHEL) and purchased 19.59 million shares of the company. As of March 31, the fund’s stakes in Shell Plc (NYSE:SHEL) are valued at $1.07 billion, which covers 0.63% of its investment portfolio.
At the end of Q1 2022, 37 hedge funds disclosed ownership of stakes in Shell Plc (NYSE:SHEL). The total stakes of these hedge funds in the company were valued at $5.63 billion, up from $2.63 billion in the prior quarter with 41 positions.
Grantham Mayo Van Otterloo & Co. LLC, an asset management firm, recently published its first-quarter 2022 investor letter in which it mentioned Shell Plc (NYSE:SHEL). Here is what the firm had to say:
“The market is simply not valuing resource companies at reasonable levels given any plausible base case for how the world might play out, in our opinion. With oil prices up around 65% and natural gas prices up hundreds of percent since the beginning of 2020, Shell (NYSE:SHEL), a bellwether for the oil and gas industry, is more or less flat. With the movement in oil and gas prices, one would have expected Shell’s stock price to surge. It didn’t, however, leaving Shell at very attractive valuation levels. At commodity prices as of the end of the first quarter, Shell would be cranking out free cash flow yields of 22-23% for the next few years according to our models.”
3. Rio Tinto Group (NYSE:RIO)
Fisher Asset Management’s Stake Value: $1,135,966,000
Percentage of Fisher Asset Management’s 13F Portfolio: 0.67%
PE Ratio as of June 14: 5.93
Number of Hedge Fund Holders: 26
Hedge funds are bullish on Rio Tinto Group (NYSE:RIO). At the close of Q1 2022, 26 hedge funds held stakes in the company worth $2.54 billion. This is compared to 22 positions in the previous quarter with stakes worth $1.83 billion. The hedge fund sentiment for the stock is positive.
On June 8, Rio Tinto Group (NYSE:RIO) announced that it is actively seeking proposals to develop large-scale wind and solar power facilities in Central and Southern Queensland to support its aluminum properties in the region: the Boyne smelter, the Yarwun alumina refinery, and the Queensland Alumina refinery. The company believes this will facilitate meeting its green-energy goals of achieving carbon neutrality by 2050. The company’s mineral assets in the region require 1140 megawatts of uninterrupted power to operate, which is the same as 4000 megawatts of reliable wind or solar power.
As of June 14, Rio Tinto Group (NYSE:RIO) has returned 4.45% to investors over the past six months and has a forward dividend yield of 12.12% along with a PE ratio of 5.93.
On June 7, Jefferies analyst Christopher LaFemina upgraded Rio Tinto Group (NYSE:RIO) to Buy from Hold and raised his price target to $93, up from $92.
As of March 31, Fisher Asset Management is the most bullish hedge fund on Rio Tinto Group (NYSE:RIO) owning over 14.12 million shares of the company. The fund’s stakes in Rio Tinto Group (NYSE:RIO) were valued at $1.13 billion, up 5% from its Q4 2021 stakes.
2. TotalEnergies SE (NYSE:TTE)
Fisher Asset Management’s Stake Value: $1,316,605,000
Percentage of Fisher Asset Management’s 13F Portfolio: 0.77%
PE Ratio as of June 14: 4.54
Number of Hedge Fund Holders: 20
TotalEnergies SE (NYSE:TTE) operates as an oil and gas company worldwide. The company’s primary business segments are Integrated Gas, Renewables & Power, Exploration & Production, Refining & Chemicals, and Marketing & Services. On April 28, TotalEnergies SE (NYSE:TTE) posted earnings for the first quarter of fiscal year 2022. The company reported earnings per share of $3.40, beating expectations by $0.61. The company’s revenue for the quarter came in at $63.95 billion, up 65.53% year over year, and beat Wall Street consensus by $6.17 billion.
As of June 14, TotalEnergies SE (NYSE:TTE) has gained 11.63% over the past twelve months, has a forward PE ratio of 4.54, and a trailing-twelve-month dividend yield of 5.43%.
This June, Credit Suisse analyst Amy Wong initiated coverage of TotalEnergies SE (NYSE:TTE) with an Outperform rating and a EUR 60 price target. The analyst noted that the market appears to be overlooking the company and that its growth story merits more appreciation, at current share levels. Wong further noted that TotalEnergies SE (NYSE:TTE) offers a solid growth profile among oil and gas giants, which is supported by its hefty upstream investment in the 2010s.
Hedge funds are raising their stakes in TotalEnergies SE (NYSE:TTE). At the end of Q1 2022, 20 hedge funds held stakes in TotalEnergies SE (NYSE:TTE) worth $1.77 billion. This is compared to 17 hedge funds in Q4 2021 with stakes worth $1.58 billion. The hedge fund sentiment for the stock is positive.
In the first quarter of 2022, Fisher Asset Management raised its stakes by 5% in TotalEnergies SE (NYSE:TTE), bringing them to $1.31 billion. Fisher Asset Management is also the top shareholder in the company and the investment covers 0.77% of its 13F portfolio.
1. Freeport-McMoRan Inc. (NYSE:FCX)
Fisher Asset Management’s Stake Value: $2,524,330,000
Percentage of Fisher Asset Management’s 13F Portfolio: 1.48%
PE Ratio as of June 14: 9.66
Number of Hedge Fund Holders: 68
At the close of Q1 2022, 68 hedge funds were bullish on Freeport-McMoran Inc. (NYSE:FCX). These funds held collective stakes worth $4.10 billion in the company, up from $3.77 billion in the previous quarter with 66 positions. The hedge fund sentiment for the stock is positive.
This April, Freeport-McMoran Inc. (NYSE:FCX) posted gains for the first quarter of fiscal year 2022. The company’s revenue for the quarter amounted to $6.60 billion, up 36.14% year over year, and outperformed market consensus by $148.02 million. Freeport-McMoran Inc. (NYSE:FCX) registered an EPS of $1.07, ahead of Wall Street expectations by $0.15. Moreover, as of June 14, Freeport-McMoran Inc. (NYSE:FCX) has a forward price-to-earnings ratio of 9.66.
On June 9, Credit Suisse analyst Curt Woodworth raised his price target on Freeport-McMoran Inc. (NYSE:FCX) to $38 from $32 and upgraded the stock to Neutral from Underperform. Woodworth noted that he sees copper prices to sit at higher levels in the medium term which makes the risk/reward ratio for copper bullish, and the risk/reward ratio for Freeport-McMoran Inc. (NYSE:FCX) “more neutral”.
As of Q1 2022, Fisher Asset Management is the top shareholder in Freeport-McMoran Inc. (NYSE:FCX), owning over 50.75 million shares of the company. As of March 31, the fund’s stakes in the company are valued at $2.52 billion, up 4% from the fund’s Q4 2021 stakes. Freeport-McMoran Inc. (NYSE:FCX) covers 1.48% of Ken Fisher’s 13F portfolio.
Here is what Horizon Kinetics LLC, an investment management firm, said about Freeport-McMoran Inc. (NYSE:FCX) in its fourth-quarter 2021 investor letter:
“Those were some ideas about copper demand. Here are some specifics about supply. Global copper mine production in the 10 years from 2005 to 2015 rose 2.45% annually. In the next 5 years, to 2020, it increased by only 0.9% annually. Even ignoring the 2020 pandemic year, for the 4 years from to 2019, the expansion rate was 1.66%. We already have the historical context for this: the commodity price collapse prior to 2015, from a position of excess capacity.
What producers must do in that situation, because they have high fixed costs and debt expense, is curtail their exploration and development expenditures and reduce operating costs. They rely on existing mines, instead, and on their highest-grade ores and lowest-cost production. They might not actually reduce current production, but they aren’t replacing the reserves that are being slowly drawn down. You can see this at work at the individual company level.
Freeport-McMoRan will illustrate. It is the world’s third-largest copper producer, closely following Chile’s Codelco and Australia’s BHP Group. In 2014, even though Freeport sold more copper than the prior year, its revenues dropped by over 25%, and it went from $4.8 billion of operating earnings (a 22% margin) to a $(0.2) billion loss. The company’s capital expenditures peaked in 2014 at $3.86 billion and will be about $1.72 billion in 2021, meaning the company is spending 55% less now than it was seven years ago. In inflation-adjusted terms, it’s spending 61% less today than seven years ago…” (Click here to see the full text)
You can also take a look at 10 Cheap Value Stocks To Buy According To Seth Klarman and 11 Best Value Stocks To Buy According To Warren Buffett.
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Disclose. None. 10 Undervalued Stocks in Ken Fisher’s 2022 Portfolio is originally published on Insider Monkey.
