Sometimes the market offers investors a rare chance to buy shares of a great company on a dip. That's precisely the opportunity we're getting right now with Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX).
The current market volatility is giving investors with an eye toward long-term investments a great chance to buy shares in a world-class company.
FCX is one of the best-run global mining companies and a great way to gain exposure to gold and copper. So it's time to "Buy" Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) (**).
And if scooping up a top-notch commodities play on a pullback isn't reason enough, here are six other reasons to buy FCX.
- Freeport-McMoRan reported a 54% year-over-year jump in fourth-quarter profit.
- The company is able to generate fat profit margins of about 22%.
- It's generating organic growth.
- And it's sitting on world-class reserves.
- The stock is trading at a bargain-level Price/Earnings (P/E) ratio of 10.7.
- And it sports a 2% dividend yield.
So let's take a look at this in more detail.
The Lowdown on Freeport
Freeport-McMoRan was founded in 1987, and is based in Phoenix, AZ. It employs about 30,000 workers across North America, South America, Indonesia, and the Democratic Republic of Congo.
This global diversification is important, because locational stability matters when an investor starts to price in investment risk. Diversity in operations around the world offers an investor a lower risk profile than does a concentrated company.
Freeport-McMoRan offers investors terrific exposure to both precious metals – gold and silver – as well as industrial growth – by way of its copper, molybdenum and cobalt reserves.
The company's consolidated recoverable proven and probable reserves total:
- 37.2 million ounces of gold
- 270.4 million ounces of silver
- 104.2 billion pounds of copper
- 0.78 billion pounds of cobalt
- And 2.59 billion pounds of molybdenum
Freeport-McMoRan reported fourth-quarter profit of $1.5 billion, or $3.25 per share, in December, up from net income of $971 million, or $2.15 per share, during the same period in 2009.
Freeport-McMoRan stock currently sports a very healthy P/E ratio of 10.7. This means, that at current rates, it will take only 10 years for the company to earn what you are paying per share.
I also like that the stock pays a real dividend. If you are a long-term investor, it is always nice to watch your cost basis in a position drop. Freeport-McMoRan will pay you to wait. I like that in a safe, stable company.
In October, the company raised its dividend rate to $2.00 per share from $1.20 per share. In December, the board authorized a 2 for 1 stock split. The new dividend rate will be paid on the pre-split shares.
In February, the company announced it was buying back all of its outstanding 8.25% senior notes due in 2015. This will carry a cash cost of approximately $1.1 billion, as the notes are being redeemed at a premium of 104.125, saving the company an average approximate yearly interest cost of $90 million dollars.
After this buyback, approximate total debt on Freeport-McMoRan's balance sheet will drop to $3.7 billion. Once net debt and cash are considered the balance sheet is remarkably unleveraged – considering the company has a market cap of $47 billion, and an enterprise value of $52 billion.
Freeport-McMoRan stock climbed 3.45% on Friday to close at $49.48. That's right in the middle of its 52-week range of $28.35-$61.35.
Bottom Line: Freeport-McMoRan gives investors a chance to hold a basket of world class projects with a nearly unleveraged balance sheet.
Freeport-McMoRan has a world-class set of reserves, worthy of owning for years. I would suggest purchasing half of the position now, then waiting to see if the market pullback gives us a better entrance point.
It would be great if we could scoop up some shares at a 10% discount to where they're currently trading. But no matter what, we want FCX to be a part of our long-term investment portfolio. It is worthy of long-term capital gains.
(**) Special Note of Disclosure: Jack Barnes has no interest in Freeport-McMoRan Copper & Gold Inc. at market. (NYSE: FCX).
Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.
Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, "Confessions of a Macro Contrarian," and his "Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzed Peabody Energy Corp. (NYSE: BTU).]
News and Related Story Links:
- Money Morning "Buy, Sell or Hold" Feature:
Buy, Sell or Hold: Peabody Energy Corp. (NYSE: BTU) May Be Too Hot to Handle.
- Money Morning News Archive:
Buy, Sell or Hold Stories.
- Freeport-McMoRan Copper & Gold Inc.:
Fourth-Quarter and Year Ended December 31, 2010 Results.
Confessions of a Macro Contrarian.