|Written by GSCR Staff|
|Thursday, 09 October 2014 05:31|
…Call me Deacon Blues. The reference to the Steely Dan song is extremely dated but brings home the point.
The college football world was turned topsy turvey this past weekend as some perennial losers like Ole Miss and Mississippi State won big and the dynasty, Alabama, lost. Is this coincidence with what appears to be a market correction or bear market? Are the losers turning to winners? We digress…
One observation we made in Monday’s Goldman Guide was that multinational companies have increased savings over the last few months as the U.S. dollar appreciates against foreign currencies. This phenomenon, in what is effectively a currency trade, could be a sign of the early stages of an economic recovery. The time may be right to dip your toes into the possibility of an economic upturn. What is a good avenue for this?
Copper prices are an outstanding metric for economic activity. Copper is used in just about everything from housing to computers. An increase in demand, hence an increase in price, is usually an indicator of surging economic activity. Copper, the commodity, is down over 6% this year, and has bounced between $3 to $4 per pound over the last three years. A breakthrough to the $4 level and beyond could be good news for copper miners.
Freeport-McMoRan, Inc. (NYSE – FCX - $32.30) is the second largest copper miner in the world. The Company also does other minerals along with oil and gas, but copper is the firms’ bread and butter. Below is the 3-year chart for the stock.
3-Year Chart for FCX
(Source: Yahoo! Finance)
On the technical side, the stock appears to have approached another dip in what has been an approximate head and shoulders pattern over the last three years. The simple valuation checks out as the forward P/E of 11 is below the trailing metric of 13, and the 5-year PEG is a low 0.3. Additionally, the firm has maintained a healthy 25% operating margin over the past four quarters.
Is the economy finally turning around? That’s a $1 million question. Buying a little FCX or some long calls could be a way to get in on what could be a turn around as the losers become winners. The stock could end the year close to the $40 level.
Have a great day!
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
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