Top picks 2012: Freeport McMoRan

The miner looks cheap regardless of the outlook for copper.

By TheStockAdvisors Jan 6, 2012 10:58AM
Image: Gold Bars (© Stockbyte/SuperStock)This post is one in a series in which over 50 newsletter advisors share their Top Picks for 2012.

By Kevin McElroy, Global Commodity Investment

One of my favorite blue-chip commodity stocks is on sale again. Freeport McMoRan (FCX) currently has more superlatives than a high school yearbook.

It's the biggest copper miner in the world. It owns the mining rights to three of the world's largest copper mines -- one in Utah, one in Indonesia and one in South America. In addition, according to the 2011 Forbes 2000 list, Freeport is also the highest ranked gold mining company.

Forbes ranks companies based on sales, profits, assets and market value -- so Freeport beat out market favorites like Goldcorp, Barrick Gold and Newmont.

Even better: Freeport currently sells for less than seven times earnings, and it pays a 2.5% annual yield. Even for a big boring mining company, seven times earnings is cheap. The entire sector is cheap now too, with the average price-to-earnings ratio just above 10.

Of course, underscoring my enthusiasm for Freeport is my thesis for higher commodity prices -- yes, even copper.

And I’m quite aware that copper is the only commodity with a Ph.D. in economics. I've heard all the platitudes about copper being a harbinger of the broad economy, and that copper needs growth and economic expansion in order to maintain higher prices.

As far as I can tell, that’s the only real constraint on Freeport. And while it’s definitely a valid concern -- Freeport’s price already reflects the likelihood that copper prices could fall -- it's still inexpensive.

We've seen this scenario before. Demand for copper can fall, even as its dollar-denominated price rises. That's because supply and demand aren’t the only functions that influence asset prices anymore. We're through the looking glass, and a currency crisis will eventually make everyone pay more for every asset -- even if it's a growth asset like copper.

Not only is Freeport cheap, it also meets all of my other objectives. It has very little debt, a huge profit margin, and it's trading near 52-week lows. And every time it's been this cheap in terms of price-to-earnings ratio, the price soared over the next year.

Now, I'm not saying you should go out and load up the truck today on Freeport. I'm saying you should look for weakness in this stock and buy in tranches over the next few months. I think we’ll see significant gains over the course of 2012.

Steven Halpern's offers a free daily review of the favorite stock ideas of the nation's top financial newsletter advisors.

Tags: FCXgold


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

125 rated 1
264 rated 2
485 rated 3
679 rated 4
640 rated 5
617 rated 6
632 rated 7
493 rated 8
276 rated 9
153 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.