Southern Copper's Stock Split Doesn't Hurt Its Fundamentals One Bit

After the bell Wednesday, Southern Copper Corp (PCU) announced a 3 for 1 stock split to happen July 10th to shareholders of record 30th June (i.e. end 2Q08). I'm not a fan of these things, but some traders play the bumps made by hot splitting stocks and swear by the action it gives them. The downside to splitting a stock with a fairly low amount of shares out (it’ll still be under 900m once it’s all over, and the vast majority will still be in owner/institution hands) is that it gets more vulnerable to short selling. Whatever happens, it sure doesn't affect the underlying fundamentals, so I don't care that much. Anyway, the company is doing it, so be it, and we'll see what's what as the big day approaches. Message to Biiwii: Gary... you got a TA view on splits?

Meanwhile, here's a chart I put together once I'd realized something about yesterday's action.

PCU had a good day Thursday and finished above $105, and as far as I can see yesterday was only the second time in the last 6 months that PCU has finished positive on a day that its closest comparative company, Freeport McMoRan (FCX) has finished negative (it happened March 19th).

These direct comparison charts are usually a bit silly, because it doesn't matter if the stock price is the same when the companies involved have different numbers of shares out. In the case of FCX and PCU, Freeport is a much bigger company with a market cap of around US$46 billion at present, which compares to the US$30 billion market cap of PCU. But all the same, the chart does show just how badly PCU's trasero has been whupped by FCX in the last few sessions.

The end of the strike in Moquegua has obviously helped PCU, and with main products of copper (U$3.85/lb) and moly (U$33/lb) still riding high, the quarter should come in just fine. There are still all the labor issues at the company's Mexico division dragging the stock down, and the ASARCO lawsuit (that affects parent company Grupo Mexico more than PCU) will drag on most of the year and quite possibly under any appeal through 2009 or even beyond. Despite all this, the market has spoken and said that with copper up where it is, PCU@US$100/share is too cheap.  

My very short term target? US$110, and if it comes to pass I'll take an 8% gain quite happily on the trading block. But no matter what, the long term PCU position won't change by so much as a single share. Gimme the divis, dudes!

Disclosure: Long PCU

Comments

[herve villa...:]

I own PCU, but watch out. Sometimes companies will make a move like this to boost shares prior to bad news. Don't underestimate their production problems - this quarter could come in pretty light.

2008 Jun 20 11:40 AM

[Gary Tanashian:]

Nope, sorry dood.
"Message to Biiwii: Gary... you got a TA view on splits?"

2008 Jun 20 04:26 PM

[bds231:]

#1 - Of course the stock split doesn't hurt the fundamentals -- splits are nothing mroe than window dressing. As for traders playing stock splits: Stocks that split are almost always momentum stocks (that's why their share price rose to the point where a split was required in the first place).

#2 - How could having more shares possibly make PCU vulnerable to shorting?

#3 - The short-term target for PCU is $110, less than 1% above today's close? Not exactly going out on a limb there, are we?

#4 - Actually, unless you're planning on making a large sale soon, your PCU position will change by many shares -- it will triple due to this very split we're discussing!

2008 Jun 20 11:34 PM

[whisperonth...:]

Number of shares will triple but the total value will remain the same. The stock is going up, and it does provide a nice dividend. I haven't checked FCX lately, but my guess is that it doesn't have as nice a dividend.

2008 Jun 21 11:36 AM

[d_teller:]

Latest div. was $1.70 on 05-12-08. This year's dividends are below those of 2006, but still a nice 7%. The family holdings of Grupo Mexico do live on the dividends, too.

2008 Jun 21 01:36 PM