Freeport-McMoRan (NYSE:FCX) has had a nice price boost over the last month, but is still down well over 15% over the last year. The reason the price is struggling is because the company has either suffered or just stagnated, with lower demand for copper and a mostly halting gold price.
Even though the company has paid a nice regular healthy dividend for a couple of years, they paid nothing in 2009 while they experienced healthy stock price appreciation, and should be seen not as a dividend company for a safe bet, but as a long-term speculation where it's mostly a question of timing.
Why The Languishing Price
The CEO of the company said a couple of weeks ago that China's slowdown hadn't hit the company's copper production much at all:
There is slowdown in China, but we're not seeing it as much in copper as other areas.
Still, even after his statements, we're seeing copper dropping along with Chinese international trade in general, as Bloomberg explains:
Outbound shipments rose 1 percent from a year earlier in July, the customs bureau said today. Analysts surveyed by Bloomberg News forecast an 8 percent increase. Reports yesterday showed weaker-than-predicted industrial production and retail sales in the country.
Remember, China is something like 22% of world copper demand, which is substantial. But as the US is on the brink of yet another recession, as Europe is quivering with more instability, and as China's economy is slowing down, then caution is needed.
What To Expect (Economically) In The Next 24 Months
In the US, we shouldn't be expecting a recovery soon at all, but should expect the overall trend to remain either the same as the last year, or a new recession. The governments (including local and state) are spending less, believe it or not. It's just completely broken.
This doesn't mean spending from governments is inherently good, just that it creates short term malinvestment spikes that makes prices of some goods and services spike too -- that means profits for investors who see it coming. But it's not coming, so don't lose sleep over it.
In Europe, I won't wager to make a guess. But in China, the question of the malinvestment is just how long they can play bubble games. As many Austrians have learned over the last couple of decades, that can last for much longer than previously thought. The result of malinvestment is typically hurt people and lost wealth, not actual economic meltdown.
But China's economy right now is so drenched with faulty business deals that making predictions one way or another is really just folly. This is going to be a question of waiting and seeing whether it's a hard landing or an actual recession -- or worse.
When To Expect Opportunity
Mining companies often outperform the underlying commodity both going up and going down, meaning if you can get in before the price increase, then your profits are generally far higher than the increase in the underlying asset price, plus -- in the context of the company -- you also get a hefty dividend.
But for Freeport-McMoRan, it's mostly a question of waiting until all of the excess above-ground copper in China is consumed, and until we know how bad the slowdown is. Within the next 6 months, we should have a great idea.
For now, this stock is a hold, but keep your trigger finger ready for when copper prices begin increasing due to stronger economic demand. I really look forward to owning the company soon, assuming China's economy isn't worse than expected.