Freeport McMoran Is Not In Trouble Nor Undervalued - It Is An Option On Copper (Video/Podcast)

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About: Freeport-McMoRan Inc. (FCX)
by: Sven Carlin
Summary

Freeport cannot be undervalued nor in trouble - as an option, it can go to zero but also much higher. It depends on copper prices.

According to the usual forecasts, a copper supply gap should had been already here. Therefore, always expect possible delays with Freeport's plans and expected cash flows.

it is futile to do a valuation as it purely depends on copper prices, but it gives a perspective.

The last few articles on Freeport McMoran (FCX) describe it as either undervalued or in trouble. I would argue that any kind of valuation is wrong because it implies knowing how will copper prices behave over the next years.

I've been following the copper sector for a few years now, and the forecasted supply gap is always just a few years ahead. Therefore, I am wary of buying something just because it should make more money when copper appreciates.

I prefer a value investing approach where I look for a margin of safety. This implies looking at a worst case scenario as only such a scenario gives me the opportunity to find a low risk, high reward investment. At the moment, FCX is still an option on copper because at current copper prices, the actual value is really low. However, if copper prices go up, FCX will have huge cash flows.

Video/podcast content:

0:00 Copper outlook

1:17 FCX overview

2:19 Financial performance

5:23 A Conservative valuation

5:55 Sensitivity to copper prices

8:02 Debt + Lone Star

Podcast:

Video:

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.