Industrial metal copper rallied to a seven-year peak last week on the London Metal Exchange after strong economic data and stronger-than-anticipated manufacturing activity in China and South Korea. Consequently, Freeport-McMoRan (FCX), one of the world’s largest copper miners, has seen significant gains. The company also mines gold, molybdenum, silver, and oil and gas. Its key operating and development assets are in Indonesia, North and South America, and Africa.

The demand for FCX’s products has increased exponentially this year. In the third quarter ended September 2020, total revenue grew 22% year-over-year to $3.85 billion. Copper production increased 10% sequentially to 844 million pounds. EPS for the quarter came in at $0.22, significantly improving from the year-ago loss of $0.15 per share.

With a robust shift toward a low-carbon economy, and increasing demand for electric vehicles and renewable energy, copper is seeing unprecedented demand. As a result, FCX’s stock has gained 88.4% year-to-date. This bullish run and the potential upside based on a several factors have helped it earn a “Strong Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates FCX:

Trade Grade: A

FCX is currently trading higher than its 50-day and 200-day moving averages of $18.94 and $13.02, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 31% return over the past month reflects a solid short-term bullishness.

Copper prices have been primarily boosted by the weak US dollar, supply disruptions amid the pandemic and rising hopes for rebound in infrastructure projects globally. As a result, consolidated sales from the metal rose 6.7% year-over-year to 848 million pounds in the third quarter.

Buy & Hold Grade: A

FCX is well positioned in terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers. The stock is hitting new highs every trading day and hit its 52-week high of $25.43 on Friday.

Over the past three years, FCX has gained more than 75% due to its aggressive capital expenditure and falling long-term debts. However, the company’s revenue has deteriorated at a CAGR of 4.7% during the same period. The top-line primarily declined in 2019, as copper production saw a sharp slump that year on the back of negligible output from its Indonesian Grasberg mine, which was undergoing a transition.

The demand for copper is poised to skyrocket because the technologies of the future require it. Management has noted that “Electric vehicles tend to use four times as much copper as internal combustion engines, and renewable energy requires four to five times as much copper as fossil fuels. As such, long-term demand for copper seems assured.”

Peer Grade: A

FCX is currently rated #6 of 33 stocks in the Industrial – Metals industry. Other popular stocks in the industry are BHP Group Limited (BHP), Vale S.A (VALE) and Southern Copper Corporation (SCCO). FCX comfortably beat the year-to-date performance of all these industry participants. BHP, VALE and SCCO have returned 21%, 24.4% and 48.8%, respectively, over this period.

Industry Rank: A

The Industrial – Metals industry is ranked #8 of the 123 StockNews.com industries. The companies in this industry develop mine sites, mine and quarry metallic minerals, provide related support services, and prepare minerals for sale. Demand is driven by industrial production and economic growth, both domestic and foreign. Individual company profitability depends on volume and operating efficiency.

Overall POWR Rating: A (Strong Buy)

Overall, FCX is rated a “Strong Buy” due to its impressive quarterly performance, solid price momentum, strong global demand, and diverse industrial application of copper, as determined by the four components of our overall POWR Rating.

Bottom Line

Copper is perceived as a leading economic indicator that often goes by the nickname “Doctor Copper” because of its history as a barometer of the global economy’s health. Analysts at Goldman Sachs (GS) believe copper prices could soon test their existing record highs, observing that the bull run for the industrial metal is now “fully underway.”

FCX has gained significantly so far this year and is a decent investment for investors looking for stability and growth in the long run. Copper is witnessing a record demand from China because it is a major component in electric motors, batteries, inverters and wiring, and the trend is perfectly positioned to rise due to the thriving EV market. Consequently, the company’s production, shipments, and revenue are likely to rise sharply next year.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is good for FCX. The average broker rating of 1.33 indicates a favorable analyst sentiment. Of the 18 Wall Street Analysts that rated the stock, 12 have given it a “Strong Buy” rating. Moreover, the market expects current year EPS to rise a mammoth 2,200% year-over-year.

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FCX shares fell $0.03 (-0.12%) in after-hours trading Monday. Year-to-date, FCX has gained 88.04%, versus a 16.32% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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