A major part of SoCo’s weakness — copper prices — is simply out of its hands, and the trend has not been favorable over the past few years. Since peaking in early 2011, copper prices have fallen back to roughly the same level they reached at the start of our three-year tracking period. SoCo’s stock has actually outperformed the slide for a year, but Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) has almost exactly mirrored the movements of copper:
This, at least, seems to indicate a superior position for SoCo over its more diversified rival. SoCo has also been investing heavily in new infrastructure to exploit its assets. In nominal terms, the company’s capital expenditures are less than half Freeport’s, but run six times as high as smaller competitor Taseko Mines Limited (USA) (NYSEMKT:TGB) :
Taseko’s capex has actually grown at a faster rate during this time, and is now over 540% higher than it was in 2010. SoCo is no slouch, though, and its three-year capex spending growth of 320% puts it on pace to spend roughly $900 million a quarter by 2016. That might be a concern for long-term investors, as none of SoCo’s core financial metrics (revenue, profit, or cash flow) have grown at anywhere close to that rate. A rebound in copper prices will certainly help smooth over this imbalance, but there are many near-term concerns that China — the world’s largest copper consumer — is slowing down. SoCo investors should keep a close eye on Chinese economic reports for a clue to the future of their favorite copper stock.
Putting the pieces together
Today, Southern Copper Corp (NYSE:SCCO) has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy — or to stay away from a stock that’s going nowhere.
The article Is Southern Copper Stock Destined for Greatness? originally appeared on Fool.com.
Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more insight into markets, history, and technology.The Motley Fool owns shares of Freeport-McMoRan Copper & Gold.
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