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Although the S&P 500 (NYSEARCA:SPY) has enjoyed the favor of investors this year rallying 9%, there are some components that have underperformed the market. One example would be the basic materials sector (NYSEARCA:IYM) that has only increased 3%. As sectors move from favor, it is important to search for undervalued stocks. There are only two mining companies in the S&P 500 with low P/E that offer a dividend of 3% or more. The future of both will be discussed in the following paragraphs.

Freeport-McMoran (NYSE:FCX) is a mainly copper mining company that recently diversified by acquiring oil and natural gas fields in the Gulf of Mexico. This is important because according to some analysts, the price of natural gas is projected to increase by almost one dollar..

Newmont Mining Corporation (NYSE:NEM) is a gold mining industry with world-wide presence. It operates mines from Peru and Suriname in South America, North America, and several countries in the Asia-Pacific.

The following table summarizes the Year-to-Date performance of these two miners in comparison with the overall market.

Underlying

Performance YTD

P/E

Forward P/E

Dividend

SPY

9.30%

14.00

N/A

2.05%

IYM

3.26%

N/A

N/A

1.88%

FCX

-1.09%

10.51

7.03

3.73%

NEM

-12.86%

10.62

8.05

4.25%

1. Both companies are trading at a P/E of about 10 against the SPY currently holding 14.00 according to Yahoo Finance. It implies that these stocks are undervalued. They are also currently on positive sales quarter over quarter, and they will make more money in the near future with Forward P/E close to 8.

2. By having a profit margin of around 22%, both miners seem to be healthy financially; however, NEM currently has a higher debt than FCX.

3. Juicy dividend of 3.5%+ can only be possible due to increased revenues. Moreover, FCX has offered special dividends to its shareholders in 2011 and 2010. Its regular dividend has been increased since 2009 after the market bubble. Considering that there are not plenty choices in regards to high-yield dividend stocks in the S&P 500, Intel (NASDAQ:INTC) may also be considered. On the other hand, the giant chip company seems to be having problems adjusting its processor sales after the appearance of tablets.

The reason I find FCX more attractive than NEM is that China's economy is finally recovering boosting its GDP and more importantly it accounts for the use of 40% of the output worldwide. China is recently increasing copper demand which will eventually translate in higher commodity prices and revenue for FCX.

Conclusion

In brief, although both companies are relatively cheap on valuation and have positive sales numbers, FCX fared better so far this year against NEM. Both offer a high dividend which suits tax-sheltered accounts well. However, with China's copper demand increasing, everything points towards FCX having a better future in the near term.

Source: 2 S&P 500 Miners With Great Dividends