Investing in basic materials stocks often requires looking around corners into an opaque future. That’s been the case for shareholders of Freeport-McMoRan Inc. (NYSE: FCX). For the last four years, the stock has been a better trade than it has been an investment. You can blame much of the volatility in FCX stock on the demand for copper.
Copper is a critical metal that is needed for many renewable energy applications such as electric vehicles (EVs), solar panels, and wind turbines. But it’s also a key metal that will be needed in the power-hungry data centers that are needed to fuel the demand for artificial intelligence (AI) applications.
Freeport-McMoRan is one of the largest diversified mining companies in the world. And the company’s large footprint in North and South America is particularly large when it comes to sustainable copper mining.
The company has seven different copper mines in Arizona and New Mexico. Currently the company is producing approximately 230 billion pounds of copper, but the company’s long-term forecast is for production of 800 billion pounds.
It’s a Matter of Perspective
Investing in mining stocks puts investors at the mercy of the underlying commodity. And skeptics will note that the price of copper remains under pressure. The market in North America and Europe is well supplied. And the metal hasn’t received the expected bump from stimulus measures in China.
It’s a simple matter of demand. The EV market has stalled with expectations that the Trump administration will cancel the $7,500 EV tax credit that was fueling demand. Renewable energy stocks are also under pressure as expectations are that public policy will shift towards oil and gas stocks.
But that may be shortsighted. While it’s not wise to fight the trend, it’s important to note that analysts still believe that there will be a copper shortage by 2028. And that’s expected to be a multi-year event.
In anticipation of this supply shortage, the expectation is that many manufacturers will try to lock up their supply by making deals with miners. And as the largest supplier of copper, Freeport McMoRan will be a name in demand.
Other Catalysts May Add to the Supply Shortage
To begin with, the Trump administration’s pledge to “Drill Baby Drill” is more friendly to oil stocks for sure. But the long-term objective seems to be part of an all-of-the-above approach to energy. There’s no indication that this will be an administration that is hostile to renewable energy.
You also should consider residential and commercial construction. If the U.S. is expected to be entering a period of strong economic growth, copper will be needed to keep up with housing starts.
And you shouldn’t ignore gold which has been one of the best-performing assets in 2024. The price is softening a bit as the dollar strengthens, but the long-term outlook for gold is still favorable, which also works in favor of Freeport McMoRan and FCX stock.
Let Time Work for You with FCX Stock
Stock charts tell a story. In the case of FCX stock, you would have done well if you started building a position in March 2020. Since then, the stock has delivered a total return of well over 300%. You would have also done well if you bought the stock 12 months ago. In that time Freeport-McMoRan stock is up 21.7%.
However, when you look at the price action in the stock over a longer period, you can see that this was the outlier. Much of the stock’s growth came from March 2020 to March 2021. In the last three years, the total return for the stock is around 9.5%. And if you expand the chart to 10 years, the total return is around 72%.
A dividend that yields just 0.7% isn’t going to be enough to have you hold the stock. And if you weren’t conflicted enough, with a trailing P/E ratio of around 31x, you’re paying a premium for FCX stock.
That said, time can be your ally. Analysts give Freeport-McMoRan a Moderate Buy rating with a consensus price target of $54, which is 24.5% higher than its closing price on November 14.
If you believe that there will be a copper shortage by 2028, you can start building a position with the stock at or below its current level of around $43 per share. FCX has shown solid support around $39 so you’ll be trimming your downside risk, and you can average into the stock.
The article "Freeport-McMoRan, Copper Demand Short-Term Pain, Long-Term Gain" first appeared on MarketBeat.
