When we last visited Freeport-McMoRan (NYSE:FCX), the global copper giant’s stock was still climbing out of last spring’s wicked stock market selloff, and the global economy was still reeling from the effects of the novel coronavirus pandemic.
Economic conditions have improved somewhat since then, which has enabled many stocks to stage sparkling recoveries, including Freeport-McMoRan.
It has soared 37% over the last three months — or more than four times the gain of the S&P 500 over the same time frame. For the year-to-date time frame, the comparison is similar. Freeport stock is up 20%, compared to a gain of just 5% for the S&P 500.
A rallying copper price deserves most of the credit.
It’s All Thanks to Copper
The battery metal has delivered an electrifying performance since the steep March selloff — climbing from a four-year low near $2 a pound to a recent two-year high above $3.10 a pound. That dazzling recovery has powered Freeport’s share price to a two-year high as well.
Wall Street analysts have taken notice of Freeport’s improving growth prospects and ramped up their profit forecasts for the company.
Three months ago, the Wall Street consensus forecast called for Freeport to book $5.4 billion in gross profit (EBITDA) in 2021 and to produce earnings of roughly $1 per share. But the consensus now calls for $6.4 billion of EBITDA next year, on the way to $8 billion in 2023. The Wall Street crowd also boosted its 2021 earnings per share (EPS) forecast from $1 to $1.38.
As you may recall, I took issue with the consensus forecast three months ago and stated flatly:
I expect copper prices to continue trending higher toward $3 a pound [from $2.70 a pound] and gold prices to top $2,000 an ounce on their way to $3,000.
At $3 copper and $2,000 gold, Freeport’s annual EBITDA could approach $7.5 billion.
The consensus forecast has not yet reached my optimistic forecast, but it has moved decisively in that direction.
And remember, a rising copper price is not the only factor that will power Freeport’s earnings growth over the next few years.
The company’s massive investments to increase production at its Grasberg mine in Indonesia are just starting to bear fruit. As a result, companywide annual copper production should jump about 40% over the next two years to 4.2 billion pounds, while gold production should double to 1.8 million ounces.
Those hefty production numbers could produce EBITDA well over $10 billion and EPS in the range of $2 by 2023.
Elon Musk Gives FCX Stock a Lift
Meanwhile, as Tesla (NASDAQ:TSLA) CEO Elon Musk never fails to remind us, the electric vehicle revolution is producing spectacular demand growth for battery metals like nickel and copper.
Back in July, he implored the world’s mining companies to boost their nickel production. Said Musk:
I’d just like to reemphasize, any mining companies out there, please mine more nickel. Wherever you are in the world, please mine more nickel and don’t wait for nickel to go back to some high point that you experienced some five years ago or whatever, go for efficiency… Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way. So, hopefully, this message goes out to all mining companies. Please get nickel.
Over in the copper market, large supply deficits are also on the horizon, perhaps as early as next year. The story is becoming all-too-familiar: Soaring new demand from EVs and other electrification technologies, coupled with stagnant global supply growth, are creating a supply deficit in the copper market.
The commodity researchers at Roskill expect total copper demand to double over the next 15 years. They forecast total copper consumption to exceed 43 million tonnes by 2035 — or nearly double the current annual global output of copper.
Best Stocks: Freeport-McMoRan Is Headed for $60
Obviously, no one can predict the exact growth rates of the coming battery boom. But the trend is quite clear. And this trend points to booming demand for battery metals like nickel and copper.
Freeport-McMoRan is perfectly positioned to cash in on this decades-long boom. Today, the stock is changing hands for around $17 a share. But as the battery metal boom continues to gain momentum over the next few years, I expect this stock to challenge its all-time high near $60 a share.
On the date of publication, Eric Fry did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends… before they take off. In fact, Eric has recommended 41 different 1,000%-plus stock market winners in his career. Plus, he beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, right here.