Now looks like the perfect time to bet on Freeport-McMoRan Inc (NYSE:FCX).
FCX stock, which until recently was one of the better bets on natural resources, is under heavy selling pressure Thursday, falling by as much as much as 7.7% on heavy volume. The decline is a part of the broader selloff in copper, which has extended to exchange-traded funds Global X Copper Miners ETF (NYSEARCA:COPX) and the First Trust ISE Global Copper Index Fund (NASDAQ:FTRI), which are both down close to 2%.
Copper prices are trading sharply lower Thursday following weak export numbers coming in from China on Wednesday. Copper prices, for December delivery, are down by 2.5% Thursday to $2.12 per pound.
Copper has traded in a range of $1.94 to $2.44 in the past 52 weeks. Commodity prices — particularly precious metals including gold and silver — have been under pressure on fears of higher interest rates. Combined with the recent rise in the dollar, which weighs on dollar-denominated commodities like copper, investors are now looking for safer havens.
In the case of Freeport-McMoRan, FCX stock continues to get hammered. Thursday’s decline translates to a total fall of 32% since FCX stock reached a high of $13.59 on July 27. As it stands, investors have watched FCX stock lose some 34% of its value since reaching its 52-week high of $14.06 in April.
Is now time to buy?
Positive Signs for FCX Stock
Last week, Deutsche Bank boosted the rating on FCX stock to “buy” from “neutral” while raising its price target to $12.50 from $12. Deutsche Bank explained that not only has Freeport’s balance sheet improved, the firm expects the Phoenix-based company to benefit from continued upside exposure to copper.
Regarding Freeport’s balance sheet, Deutsche Bank applauded Freeport’s recent assets sales aimed at boosting cash.
Last month, FCX stock entered into a purchase and sale agreement with Anadarko Petroleum Corporation (NYSE:APC), where Freeport’s oil and gas subsidiary, Freeport-McMoRan Oil & Gas, agreed to sell its Deepwater Gulf of Mexico assets to Anadarko for $2 billion, including up to $150 million in contingent payments.
Essentially, while the fall in copper prices continues to weigh on the overall industry, Freeport is growing its cash reserve to make investments to grow the business for when copper prices rebound.
In that vein, with FCX stock down over 10% in five days and 28% in three months, the shares look oversold relative to the company’s position within the industry.
From current levels, there’s a 35% implied premium in FCX stock based on Deutsche Bank’s $12.50 price target, making Freeport-McMoRan a solid bounce-back candidate for investors with long-term horizons.
At the time of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
