Freeport-McMoRan Copper & Gold Inc: Align Your Interests With World's Best Hedged Company

Includes: CU, FCX, GLD, SLV
by: Kevin McElroy
  • A company for boom or bust
  • They sell copper AND gold
  • Strong profits during the worst market in five years

If you were in Las Vegas, it would be cheating to bet one chip on two numbers of the roulette wheel. They'd kick you out of the casino after taking your money and maybe roughing you up a little.

But today I'm going to reveal to you a publicly traded company that should benefit from boom times as well as bust. It's a way to put one poker chip on two numbers of the roulette wheel at the same time. And it won't get you kicked in the ribs.

My prediction is that we're headed (or already in the midst of) a severe recession or depression. But I've been wrong before - and even if I'm right on the trend, I could be wrong on the timing or the scope - or any number of other factors that might derail my investment thesis.

I'm okay with being wrong, especially because I'm prepared for the eventuality. If you're not prepared for the eventuality of a market that runs counter to your expectation, then you're simply not prepared.

As you know, I'm somewhat partial to commodities, so if I were to design a company that would profit during good times and bad, I would look for a firm that was more or less equally hedged between two commodities: copper and gold (and silver).

To gloss over the obvious:

Copper is the boom-time commodity. When things go well in the economy, businesses need more copper to build homes, cars, electronics, and infrastructure.

Gold is the bust-time commodity. Recessions, depressions, currency crises, and general malaise raises the public's desire to own the safety and reliability of the yellow metal.

And lucky for us, such a company exists. This company has estimated copper reserves worth over $300 billion. It has gold and silver reserves worth over $55 billion. It also has molybdenum (a metal used in making steel and other heat-intensive alloys) reserves worth over $30 billion.

Today, this company has a market cap of just $33 billion. Each share costs $72, which gets you about $70 worth of molybdenum, with $100 worth of gold and silver, and $600 worth of copper thrown in for free.

If you're bullish, this company is one of the largest copper miners in the world. If you're bearish, they have healthy precious metal reserves. If you want a two-for-one hedge, they have both.

I'm talking about Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX). The best part is that this company has extremely robust profit margins. Their net profit margin for 2009 was 18%. That was during a period of time that copper prices plunged through their five year lows, and stayed there for most of the year.

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They still managed a substantial profit margin - thanks in part to their ability to bring gold, silver and molybdenum to market. That's the kind of company I want to own. It provides a level of certainty rarely found in any market, bull or bear.

Today, Freeport McMoRan sells for less than 10 times trailing earnings. I'd recommend buying this company under $80 a share. Understand though, this company is a hedge. It's not going to double or triple your money anytime soon, but it will protect your capital in the event of boom times or bust.

Disclosure: No positions