In the short term, everything looks terrible for Freeport McMoRan Copper & Gold (FCX), a member of my Jubak’s Picks portfolio.

  • Copper prices hit a new low for 2011 of $3.28 a pound on September 9.
  • The HSBC/Markit Economics China Manufacturing Purchase Managers Index fell to 49.4 in September from 49.9 in August, signaling that China’s manufacturing sector—a big user of copper—had started to contract. (On this survey, a number below 50 indicates contraction.)
  • Strikes have hit the company’s big Grasberg mine. The union originally said it planned on a month-long strike to force the company to pay higher wages, but now says that the work stoppage could go on for longer.

In the long term, though, the picture looks totally different.

Long-term copper demand continues to outstrip additions to industry supply. Codelco, the state-owned Chilean company that is the largest copper producer in the world, said on September 3 that “the global copper market is headed for its biggest deficit since 2004, as suppliers fail to keep pace with demand led by China.”

Investors, afraid that they’re about to see a replay of 2008—when copper and other commodity prices collapsed and shares of Freeport McMoRan fell to $8.40 in December from $56 in June—pushed the price of these shares to $32.55 at Friday’s close, from $56 at the end of July.

I can’t tell you that this is as low as the stock will go. (It’s up today, September 26, by 1.8% as of 2:15 p.m. ET.)

Fear that the European debt crisis will slow global growth, that the US economy will slip back into recession, and that China’s growth engine will slow significantly will keep pressure on copper prices in the near term. Copper could move lower, and gold—well, gold is selling off as traders liquidate positions to meet margin calls from their brokers.

But I can tell you that the stock is now cheap on the fundamentals. For example, Jefferies just cut its estimate for 2011 earnings per share to $5.30, from $5.66. At that lowered estimate, the stock traded Friday at a price-to-earnings multiple of 6.1.

The mid-point of the stock’s price-to-earnings range over the last ten years is 10.4, Standard & Poor’s calculates. At that mid-range P/E ratio, Freeport McMoRan would sell for $55 a share, almost 70% above Friday’s close of $32.55.

And this is a company with much sounder fundamentals today than it had in 2008. Long-term debt, for example, was $9.2 billion at the end of 2008, but just $4.7 billion at the end of 2010. Free cash flow was $5.5 billion for the trailing 12 months.

Keep some powder dry so that you can add shares if this bargain becomes even more of a bargain. But adding a position or adding to a position (since the stock is already a member of my Jubak’s Picks portfolio) in Freeport McMoRan strikes me as a good long-term bet at $32 a share.

As of today September 26, I’m lowering my target price to $55 a share by June 2012, from the current $75 a share by July 2012.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Freeport McMoRan Copper and Gold as of the end of June. For a full list of the stocks in the fund as of the end of June, see the fund’s portfolio here.