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Freeport Insiders Bet $28 Million
09/06/2013 8:00 am EST
This is a conservative, well-diversified mining operation. Based in Phoenix, Arizona, this is one of the world's largest mining companies, notes Mark Skousen, editor of Forecasts & Strategies.
Freeport McMoRan (FCX) has major operations in North and South America, Africa, and Indonesia. Its proven and probable reserves include 116.5 billion pounds of copper, 32.5 million ounces of gold, 3.4 billion pounds of molybdenum and 321 million ounces of silver.
In addition, FCX recently has added major oil and gas assets that include production facilities in California and the Gulf of Mexico, as well as large onshore resources in the Haynesville natural gas trend in Louisiana.
With copper and precious metals prices falling in the past few years, recent financial results have been lackluster. In the most recent quarter, earnings declined 32% on a 4% drop in revenue. So, understandably, the stock is well off its 52-week high of $43.65.
Yet the earnings trend is about to change in a big way. I estimate that increased production, and new properties coming online, will drive earnings from $2.50 a share this year to more than $4 a share next year.
Two people who believe the sell-off in the stock is overdone include Chairman James Moffett and Director Gerald Ford (obviously not the late former US president).
In fact, they each have invested more than $28 million in the stock during the last few weeks. That investment demonstrates a strong conviction that the stock is undervalued. And I believe they're right.
Gold is a difficult asset to forecast and its movement from week to week is unpredictable. But you can look back at history and clearly see that gold stocks are as cheap in relation to the metal itself, as they have ever been.
And Freeport is a better way to play it because it's diversified into copper, oil, and gas, and other natural resources.
And don't forget that FCX has a rising dividend policy, with a current yield of 4%, one of the highest in the industry. It also pays out an annual special dividend—in June it amounted to $1.31. I expect another dividend increase when it reports in October.
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