If you’re looking for a volatile stock to trade, it’s hard to do better than Freeport-McMoRan Inc (FCX) because macroeconomic forces and monetary policy are whipping FCX around even more than usual these days.
FCX stock got a double-dose of good news Wednesday on both the economic and policy fronts.
The Federal Reserve’s dovish statement delayed a rate hike anytime soon. Predictably, gold prices soared.
(As an aside, ultra-low low rates and past quantitive easing haven’t sparked inflation. Where’s the evidence that it will happen now?)
At the same time, copper prices jumped about 2%. Freeport-McMoRan — a fracker and copper and gold miner — had a followed suit with a big day itself. Then, as if on cue, profit-takers bailed on FCX. By mid-Thursday trading, FCX stock had given up more than 4% of those gains.
That’s just how it goes with assets tied to gold and other metals prices, and that makes Freeport-McMoRan attractive to traders who thrive on volatility.
True, FCX stock has been a terrific hold this year with a year-to-date gain of about 57%. The S&P 500 Index is up only 1% over the same span. But anyone who rode FCX stock all the way must have had an iron stomach. After all, it has a beta of 2.66. That’s more than two-and-a-half times the volatility of the broader market.
FCX Not a One-Trick Pony
But there’s more to Freeport-McMoRan stock than just being a trader’s dream date. The extended upside it’s delivered is based on improving fundamentals and macro anxiety.
The market is pleased with the speed at which FCX has pared an onerous pile of debt. At the end of 2015, the miner carried $20 billion in liabilities on its books. At the time, FCX had a market capitalization of roughly $8 billion. It was levered up to its nose and bleeding cash.
Cost cuts and asset sales have substantially improved the picture. FCX has so far managed to pare negative cash flow to $1.72 billion from $2.8 billion in the previous quarter.
Separately, uncertainty over whether the U.K. will leave the European Union is a stiff tailwind. If the Brexit really does come to pass, look out for FCX stock. Investors are going to pull money out of the financial sector and pour it into so-called safe havens like gold.
However, the biggest risks are out of anyone’s control. Shares are going to primarily key off commodity prices, and those are probably harder to forecast than ever. Copper, gold and oil are positive for the year-to-date, but have tumbled from their peaks.
The bottom line is that Freeport-McMoRan stock still looks like a good rebound bet after a horrible 2015. The situation is getting better rather than worse. FCX also has experience with steep cyclical beatings, notably when oil prices plunged amid global recession in 2008.
Just be informed that this is a volatile and risky bet. And the big move off the bottom means some of the upside has already been factored in. That said, call FCX stock a buy or a hold, not a sell.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
