Freeport-McMoRan Stock’s Long List of Catalysts Boosts Its Buy Status

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Freeport-McMoRan (NYSE:FCX) is highly leveraged to three huge trends. Meanwhile, the company could easily become a takeover target and/or it could sell stakes in a number of its mines for large amounts of money.

Freeport-McMoRan Stock's Long List of Catalysts Boosts Its 'Buy' Status
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Further, there are several reasons why buying the FCX stock looks more advantageous than buying copper ETFs. Taking all of these points together leads me to advise that long-term investors should look to buy Freeport-McMoRan stock.

Three Huge Trends

Freeport-McMoRan obtains a high proportion of its revenue from copper, an important component of batteries for electric vehicles (EVs). The EU has extremely strong emission requirements for automakers, and China has a goal of having EVs and other “new energy vehicles” make up more than 20% of its total vehicle sales by 2025. Meanwhile, Tesla’s (NASDAQ:TSLA) vehicles are becoming very popular in the U.S., and General Motors (NYSE:GM) recently announced that it had created batteries with a range of 400 miles. That latter development could help GM’s EVs to proliferate, both in the U.S. and overseas.

Further, Freeport develops cobalt, a byproduct of copper mining which is used in EV batteries. According to Wired, there could be a shortage of cobalt, which is quite expensive and rare. It looks like Freeport is well-positioned to make a great deal of money from its cobalt.

Copper and cobalt are also used in batteries used to store energy, and large batteries are often being paired with solar panels so that clean energy can be utilized when the sun isn’t out. Additionally, “solar and storage” is increasingly being seen as a relatively cheap way of providing electricity.

Finally, as I’ve noted in the past, driven by the proliferation of EVs, the growth of data centers, and economic growth in the developing world, electricity usage looks poised to surge. As a result, demand for copper wiring is likely to greatly increase.

Wall Street analysts expect Freeport’s earnings per share to jump to 36 cents this year and $1.17 next year versus just 2 cents last year. I think the trends described above are a big reason for their optimism. And this is a good place to note that, based on the average 2021 EPS estimate, Freeport-McMoRan stock has a price-earnings ratio of less than 10, making the shares very cheap.

M&A Possibilities

Oil has obviously become less lucrative than it used to be. Consequently, oil companies and/or investors who used to focus on oil could be looking for new natural resources ventures that they can put their money into. Given its focus on materials that are used in up-and-coming products, Freeport-McMoRan could very well attract some of that money, either in the form of a takeover of the company or sales of stakes in its mines.

Meanwhile, as far as I can tell, there’s no cobalt ETF, and cobalt appears to be more lucrative than copper. Further, an ETF can’t be acquired, so investors who buy copper ETFs wouldn’t benefit from the 100%-200% increase in Freeport-McMoRan stock that’s likely to occur if the company is acquired. Finally, from mid-August until the coronavirus outbreak, Freeport’s stock surged 42%, while one of the main copper ETFs, the United States Copper Index Fund (NYSEArca:CPER), rose about 15% during the same period. If Freeport’s shares nearly tripled the return of a copper ETF over a five-month period during good economic times, there’s a good chance that the stock will be able to duplicate the feat in the future.

Bottom Line on Freeport-McMoRan Stock

The shares are highly leveraged to big, important trends, and their forward P/E ratio is actually quite low. Moreover, the shares could be boosted by a takeover or investments in the company’s mines. Given these points, I recommend that long-term investors buy the stock.

As of this writing, Larry Ramer did not own shares of any of the aforementioned companies. Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.


Article printed from InvestorPlace Media, https://investorplace.com/2020/03/freeport-mcmoran-stocks-long-list-of-catalysts-boosts-its-buy-status/.

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