Freeport-McMoRan (NYSE:FCX) has benefited from the unease in Europe and the job crisis in America. With investors running to the safety of precious metals, it boomed last year. But, this has changed over the last few months with optimism building in the Euro zone and the rise of jobs in America. Freeport-McMoRan is trading around $36 per share currently, having seen its stock value decline steadily since mid July of last year. The good news for an investor is that, at this price, you could be getting a bargain.
Precious metals are always a safety net for investors and if the Euro zone sees members start to default on debt, investors will run to the safety of it. Proof of this can be seen in the market trends for Freeport-McMoRan. Its peak in July coincided directly with the Euro zone announcement that Greece would be allowed selective defaults. As Greece began to recover, Freeport-McMoRan followed an inverse pattern and slowly declined. There are, of course, other factors involved, but this trend cannot be ignored.
A more recent example concerns the latest job report released by the Obama Administration. With fewer jobs being created as expected, stocks took a hit across the board. However, in just the last few days Freeport-McMoRan has seen its stock rise around $2 per share. Uncertainty in the market drives up the price of precious metals, and this instance was no different.
Freeport-McMoRan has seen its competitors feature similar trends connected with the Euro zone and American job crisis. A similar company is Vale S.A. (NYSE:VALE), who saw its stock peak and drop much like Freeport-McMoRan. It reached a 52 week high of over $34 and has seen a steady decline to its current value around $24 per share. Of course, Vale has to contend with, or be supported by, the ever tumultuous Brazilian stock market, and while it stays linked to the economy at large, its first indication of success will be what its home country's market allows for.
One of the biggest mining companies, Newmont Mining (NYSE:NEM) currently sits around $50 per share but had a 52 week high of over $72 last November. It too coincides with the high levels of stress in America and the Euro zone, although its movement is not as drastic. The fairly steady decline mirrors Freeport-McMoRan with both shares increasing and then decreasing in value by about 20%.
One competitor who appeared to buck this trend was Southern Copper (NYSE:SCCO). Over the last 52 weeks, it has stayed around $32 per share, seemingly avoiding the swings that affected its competitors. One reason for this is that its business focuses primarily on minerals in Peru, Mexico, and Chile. Its competitors are more spread out and thus more susceptible to international swings. This keeps it somewhat isolated but certainly not completely protected. Another reason is that its primary focus is on copper and silver, but not gold. Southern Copper's consistency shows just how volatile the gold market can be at times.
Looking at the rise in gas prices and the uncertainty surrounding countries like Spain, Italy, and Greece I would say the EU recovery is still in its infancy. Greece and Italy have seen borrowing rates continue to rise while each introduces unpopular austerity measures. Spain, meanwhile, has a budget gap of 8.5% and is installing its own austerity package to save 27 billion Euros. If these countries don't follow though with debt repayment or if Germany stops lending things could fall apart quickly.
Even if the Euro zone does pull itself out of this mess, there are few who see it happening in the near future. This means there will still be bumps in the road where investors run back to precious metals. Freeport-McMoRan has shown that it increases in value with a rise in market fear. It has already shown signs of recovery in the past few days and has shown the capability to top out around $55. At around $36 per share there is a lot of room for growth. At such a low price, selling would be a mistake because of its diminished value over the last 7 months. Also taking into account that precious metals retain their value, your investment risk is much lower than with other types of commerce.
If you currently own Freeport-McMoRan wait it out and see if it returns to form to reap the profits. If you need another reason to hold on to Freeport-McMoRan, know that it will be increasing its annual cash dividends on its stock from $1 to $1.25 per share.
If you are in the market for precious metals, Freeport-McMoRan is at a bargain price currently and has shown the ability to trend upwards. I would base its value more on the political and economic landscape than most other buys, so pay close attention to trends, and trade accordingly.
If you like the risk of the gold market, then Freeport-McMoRan is perfect for you. Gold is also cheap at its current price, so it presents a healthy buying opportunity. However, if you prefer some consistency, look more towards its competitors that focus on other metals, such as copper or iron. These companies have shown more of a tendency to ride out the market, but may cost you more and you may not see the same type of return.
At this point, we know what Freeport-McMoRan is capable of, and with the international stage not yet poised for significant growth, it may be just the stock to take. If you start to see enormous recovery coming, you can sell, but you should have plenty of time to recognize the factors and do so.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.