Dr. Copper’s pricing action typically forecasts the direction of the economy, as conventional wisdom would dictate. With copper prices down 17% from four-year highs, the drop is signaling troubles ahead for U.S. and global economies.
Markets may no longer ignore the escalating trade tensions between the U.S. and China. The cost of tariffs to suppliers, passed on to consumers, will hurt construction and manufacturing activities.
The markets will have to adjust to a lower demand-supply equilibrium, bringing copper prices lower. Freeport-McMoRan (NYSE: FCX) is reacting to the low metal prices, as the stock bottomed at $10.59 last week and closed at $11.50 last Friday.
With FCX stock at a sub-7 times P/E, investors could start building a position. This metal’s weak price runs contrary to iron ore and other commodity pricing, which is holding up. Inventories are also at five-year lows, while Freeport and Glencore both announced they benefited from strong demand for copper.
Cleveland-Cliffs (NYSE: CLF) reported revenue of $742M, up 24.3% Y/Y. EPS topped $0.64, while diluted EPS came in at $1.41. By comparison, FCX reported EPS of $0.35 (non-GAAP), GAAP EPS of $0.38, and revenue up 13.9% Y/Y to $4.91B.
Takeaway
FCX stock is at depressed levels, which may attract vulture investors. Management must not sell the company because the assets have higher worth. As copper prices rebound, eventually, revenue will grow and the stock will recover.
