Recently, Freeport-McMoran Copper & Gold (FCX) and BHP Billiton (BHP) both received upgrades from analysts covering the stocks. Because of this, I have compiled below a fundamental and technical analysis for each of these stocks as well as alternative ways to make money on a rise in their stock prices.
Freeport-McMoran Copper & Gold
The last 52 weeks have been a roller coaster for Freeport-McMoran stock holders as share prices have moved from $32 to $42 and back to $33 per share. Freeport-McMoran has fallen with other gold miners as the price of gold has moved from its high of $1800 per ounce in October to its current price of $1600 per ounce.
Recently however, Freeport's exposure to copper has gained attention. On Friday, March 15th, Goldman Sachs upgraded Free-Port from Neutral to Buy and raised the price target to $42 per share. Goldman Sachs analyst Sal Tharani commented that:
We upgrade Freeport McMoRan to Buy and see 27% upside to our new target price of $42 ($38 prior) as we raise our target price multiples by 11%, in line with historical trading ranges. We have been bullish on copper and FCX's strong exposure to the commodity, but downgraded the stock post the PXP/MMR acquisition announcement, expecting the stock to face pressure on investor uncertainty. While we do not take a view that the deals will close, we now believe the sell off is overdone and still see value in FCX stock as copper fundamentals remain strong.
As of now, the current mean target price for FCX is $40.29 and the median target price is $40.00. Analysts average estimated earnings per share for 2013 is $4.43 on revenue of $21.54 billion. Earnings per share in 2012 were $3.19 on $18 billion.
Technical Look At Freeport-McMoRan
As you can see below, FCX is trading well below its 200 day moving average, right at its 50 day moving average, and slightly above its 20 day moving average. Shares are near their 52 week low of $30.27. Momentum from the RSI (14) has been slightly bullish and is currently up to 54.83. Beta on FCX is at 1.95.
Positives For FCX
- Lower debt to equity of 0.2 compared to Industry average of 0.3.
- Lower P/E of 10.6 than industry average of 12.7.
- Lower P/S of 1.8 than industry average of 2.5.
- Lower P/B of 1.8 compared to industry average of 2.8.
- Dividend Yield of 3.7%.
- Recent interest from David Tepper and Appaloosa Management who purchased $17 million in shares during the 3rd quarter of 2012.
Over the near to mid-term FCX should benefit from increased copper and gold prices. FCX is a global leader with plenty of capital in store to continue acquiring and developing its current and future properties. In addition to purchasing shares directly, the following ETFs have FCX shares as one of their top 10 holdings:
- Dow Jones U.S. Basic Materials Index (IYM)
- Materials Select Sector SPDR (XLB)
- Materials ETF (VAW)
- ISE Global Copper Index Fund (CU)
- SPDR S&P Metals & Mining ETF (XME)
- MSCI Global Select Metals & Mining Producers Fund (PICK)
Also recently upgraded was BHP Billiton, from analysts at Shaw Stockbrocking. Shaw Stockbrocking upgraded shares from "hold" to "buy" based on increased FY'14 earnings outlook of $16.9 billion and FY'15 earnings of $17.9 billion.
BHP is a major producer of commodities such as aluminum, copper, energy coal, and iron ore among others. Shares for BHP have risen 25% off their 52 week lows but have fallen 5.52% YTD. BHP has a market cap of $194 billion and had sales last year of $72 billion.
Analysts mean price target on BHP Billiton is $63.58 and the median target price is $70.10; indicating a bearish outlook as both targets are below the current share price of $72.96. The average estimated earnings per share for 2013 is $3.77 on estimated revenue of $68.71 billion. In 2012, BHP had earnings per share of $3.60 on revenue of $72.26 billion.
Technical Look At BHP Billiton
As shown below, BHP has steadily been rising and shares currently trade above their 200 day moving average but bearishly below their 20 and 50 day moving averages. Momentum from the RSI (14) has been bearish as of late and is currently at 41.77. BHP currently trades 8% below its 52 week high of $79.30.
Positives for BHP
- Following years of decline, the world is again experiencing sustained increases in commodity prices.
- BHP's operating margin of 21.4% is above the industry average of 12.3%.
- Return on equity of 25.1% is above the industry's average of 8.3.
- Revenue has steadily been increasing over the past few years. In 2012 BHP had revenue of $72.2 billion up from 2011 and 2010's revenues of $71.7 billion and $52.79 billion respectfully.
- Strong cash flows from operating activities have allowed BHP to continue to pay its dividend which currently yields 3.1%. Payments for the dividend were $5.9 billion last year.
As seen below, the basic materials sector has been one the worst performer over the last year. At the current depressed prices, industry leaders like BHP Billiton and Freeport-McMoRan have a lot of room to move up. They will benefit from higher demand and higher prices for the product they produce as the economy picks up. I see both at great prices for a long-term investment. In addition to direct investments in BHP shares, the following two ETFs have BHP as one of their top ten holdings:
BLDRS Asia 50 ADR Index Fund (ADRA)
BLDRS Developed Markets 100 ADR Index (ADRD)