We could be going out on a limb here, but we believe Freeport-McMoran (NYSE:FCX) is a buy.
This former “Trump Trade” darling that was up 95% in 2016, has been a dud thus far in 2017 – down 13%. Part of what moved this stock higher was the belief that a Trump election would lead to a $500 billion infrastructure and economic stimulus. With Trump’s legislation stalling and the future of Freeport’s Grasberg mine in Indonesia looking uncertain, bullish momentum has fizzled out.
Despite the headwinds, there are enough bullish signs at the current share price to consider speculating here and going long Freeport.
1. Stabilizing Copper Prices
Obviously one of the top concerns is commodity pricing. Since 2011, copper prices have been cut in half, dropping below $2.00 per pound briefly before stabilizing and recovering to around $2.60 today.
The main reason for the drop in copper was related to China’s economic slowdown and a decrease in Chinese imports. China is the largest consumer of copper in the world, so obviously if the Chinese economy is struggling, this will have wreak havoc on supply and demand.
The World Bank has a bullish outlook on copper, expecting the commodities price to increase by 18% in 2017. This hike is expected both on beliefs that global demand for copper will continue to improve and that mine disruptions will affect supply.