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Freeport and Tidewater: Resources and Value
03/02/2015 9:00 am EST
We continue to think that stocks are a great place to invest for those with a long-term time horizon, asserts John Buckingham. Here, the editor of The Prudent Speculator looks at a pair of out of favor stocks offering long-term value to patient investors.
Freeport-McMoRan is a US-based natural resource company with an industry leading global portfolio of mineral assets and significant oil and gas resources. With continued pressures on energy and metals prices, FCX shares have been taken out back to the woodshed over the last six months.
While the going has been very tough, management recently announced that it would ramp copper output by some 26% next year and predicted a rebound in copper markets after 2015 due to positive long-term global fundamentals.
We like that management is focused on implementing a series of initiatives to reduce capital and operating costs to maintain financial strength during a period of weaker commodity prices, while preserving a strong resource position and a portfolio of assets with attractive long-term growth prospects.
We still like the long-term global opportunity that is in its path, while FCX trades for 14 times consensus forward (likely trough) earnings estimates and offers investors a robust (at least for the time being) 6.6% dividend yield.
With more than 275 vessels and another 30 under construction, Tidewater is the world’s largest provider of supply vessels and marine support services to the worldwide petroleum drilling industry. TDW provides towing, transport, and barge services around the globe.
While the rapid and steep drop in energy prices creates a difficult operating environment, we believe the firm will inevitably realize an operating boost from its ongoing program to modernize its fleet via newbuilds and acquisitions.
As this program slows, we see opportunity for the firm to use cash currently allocated to capital expenditures to further strengthen its balance sheet, as well as to return capital to shareholders through increased dividends and share repurchases.
Additionally, we like that TDW is more geared to international markets, where there is seemingly more demand stability for its services than is currently available in North America.
TDW currently yields 3.2% and the stock trades well below tangible book value per share and for less than 9 times forward earnings projections.
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