According to a Form 4 filed with the SEC, two limited partnerships connected to Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) Board member James Flores together purchased over 500,000 shares of stock in late July at prices of about $28.65 per share. Studies show that stocks bought by insiders tend to narrowly outperform the market on average (read our analysis of studies on insider trading) and this makes some amount of sense since unless they are confident in the $28 billion market cap basic materials company’s prospects insiders should prefer to diversify their wealth. Investors can’t imitate every insider purchase, and shouldn’t do so blindly, but these stocks can serve as initial ideas for further research.
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) has fallen over 25% since the beginning of December 2012 on a number of factors. First, the company announced that acquisition of two oil and gas companies; markets believed that management might be overpaying for these acquisitions, in addition to more common concerns regarding a lack of focus as production diversified. In the second quarter of 2013, Freeport-McMoRan’s product sales slipped slightly versus a year earlier and with production costs increasing the business experienced a more than 50% decrease in operating income. To some degree this is a one time event as the company adds its oil and gas subsidiaries (which had been struggling prior to the transaction).
Earnings per share in Q2 were 49 cents; annualizing that figure yields a P/E multiple of 14 at current prices. It’s possible that Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) will better integrate its new acquisitions over time, leading to more efficient operations, but the dominant factor swaying its returns will be commodity prices. The gold market has been weak year to date, and copper prices are also down year to date on macro concerns including worries that Chinese growth is slowing dramatically. Income investors should note that Freeport-McMoRan currently pays a dividend yield of more than 4%.
In addition to insider trading activity, Insider Monkey tracks quarterly 13F filings from hundreds of hedge funds as part of our work developing investment strategies (for example, we have found that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). This database also allows us to track interest in individual stocks over time. Billionaire John Paulson’s Paulson & Co. reported a position of 9 million shares in Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) at the end of March (see Paulson’s stock picks).