Freeport McMoran Now Attractive – An Example Of Emerging Value

October 7, 2008 at 11:03 am  ·  Category: Commodities, Fundamental Analysis, Stocks

About 6 months ago I wrote a post arguing that copper giant Freeport McMoran (FCX) was overvalued (“Freeport Valuation Bloated Here”, Top Gun FP, April 23, 2008).  At the time, Freeport was trading at $118 a share and my call generated nothing but criticism from readers on SeekingAlpha.

Today, Freeport is down almost 65% to $42 a share – and I think there is value here. 

Copper prices are down from $4 a pound in early July to around $2.50 a pound today – as I predicted 6 months ago.  That is really going to hurt their margins and cash flow.  I’m not sure of the extent but it could be so bad that they are only a breakeven company with copper at these levels.  We’ll find out more when they report 3Q earnings in a couple weeks.

But it doesn’t really matter.  With 41 million ounces of proven and probable gold reserves, 93 billion pounds of proven and probable copper reserves and a market cap of $19 billion, you get the copper for 20 cents a pound and the gold for free!  That’s an absolute steal.

This is just one example of a great company that has become a bargain during the recent selloff.  I could do the same analysis for a bunch of others.

Disclosure: Top Gun is long shares of Freeport McMoran (FCX).

Posted by Greg Feirman  ·  Trackback URL  ·  Link
 

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