Freeport-McMoRan — Don’t Mess With This Dangerous Stock (FCX)

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Freeport-McMoRan Inc (FCX) has been a trader’s dream come true. The diversified miner and oil producer has hit the skids on falling commodities prices, which has FCX riding wave after wave of volatility.

fcxWitness what happened Tuesday morning after Freeport reported quarterly results. FCX traded between $4.02 and $4.42 within the first 30 minutes of trading, or a trading range of nearly 10%. Indeed, with a beta of 2.3, FCX is effectively twice as volatile as the broader market.

Volatility is great for high-frequency traders. For retail investors with new funds to put to work … not so much. It’s debatable whether volatility is a good proxy for risk, but it does increase your chances of buying high.

And when it comes to FCX, it’s going to be harder than usual to call a bottom. The fundamentals are too uncertain.

Prices for everything from copper to natural gas could stay in the dumps for a long time. With no way to forecast an improvement in the macroeconomic picture, a wide swath of energy, industrial and materials stocks are going to reflect bears more than bulls.

FCX Keeps Digging a Deeper Hole

Just look at Freeport’s most recent results, where sales are tumbling and write-offs are mounting.

FCX said its fourth-quarter loss widened to $4.09 billion, or $3.47 per share, vs. a year-earlier loss of $2.86 billion, or $2.75 per share. Happily for traders, on an adjusted basis — which is what the market cares about — FCX had a loss of 2 cents per share vs. Wall Street’s expectations for a loss of 17 cents, according to a survey by Thomson Reuters.

Meanwhile, revenue fell 28% to $3.8 billion, which missed the Street estimate of $3.84 billion.

Some investors may be heartened by additional cost cuts announced with the quarterly report, but it also shows how desperate Freeport is to save cash.

FCX moved to cut costs just a month ago. Even worse for equity income holders, the miner suspended its dividend. FCX is also looking to sell some mining assets. The question is whether it can slash costs and reduce production fast enough to cope with a drop in commodity prices that has no end in sight.

Get this: Average realized prices for copper fell to $2.18 a pound in the fourth quarter. A year ago, copper went for $2.95 a pound. That’s a 25% drop.

And its not like anyone expects the decline in demand from China to stabilize, much less pick up. The gloomy macro picture is keeping the bargain hunters at bay. That’s why shares of FCX are off more than 75% in the last 52 weeks.

At this point, FCX is in the same position as oil stocks and many others. Does ExxonMobil (XOM) or Caterpillar (CAT) sound like a buy these days?

True, some might argue that FCX is cheap if you maintain a very long horizon. Maybe so, but the uncertainty makes it a bet to avoid for now. This play is best left to the fast money.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2016/01/freeport-mcmoran-fcx-earnings/.

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