Copper has lost more than 50% since its peak in 2011. As expected, copper miners have collapsed in such an environment. In this article, we focus on the largest copper miner, i.e. Freeport-McMoRan (symbol FCX), and try to understand whether it should be avoided or has become a buy.
Freeport-McMoRan (symbol FCX) is a $6B copper miner. Its loss per share is increasing, which is no surprise given the steep fall of the copper price. A miner needs some time to adjust its resources, i.e. staff and mining operations. The stock price went from $50 in 2011 to $3.50 in January of this year, a 93% decline. That is an serious crash.
Is this a buying opportunity from a contrarian point of view?
In order to answer that question, we looked into the hidden trendlines on the secular chart (hidden trendlines in purple). According to our methodology, hidden trendlines connect extreme swing lows or highs, and, in doing so, attribute secular value to them.
We identified 5 important hidden trendlines, as seen on the chart. Freeport’s lows of $3.50 coincided with the last of those 5 hidden trendlines. Should we conclude that the downside target of FCX is reached? We believe so. Even as spot copper could continue its decline, FCX should respect its bottom at $3.50.
Yes we believe FCX is a screaming buy between $4 and $5 per share. One could accumulate FCX on a dip, and sell half the positions once the share price doubles, in order to hold free shares. As always, protection is adviced, so put a stop loss below $4.