The Federal Reserve’s tightening monetary policy has fostered negative investor sentiment, precipitating a market correction. Furthermore, the copper industry continues to witness production shortages and supply chain issues. However, the demand for copper remains high across sectors that include power, infrastructure, energy, and others. And according to Wood Mackenzie, global demand for copper will be 50% higher in 2040 than in 2020.
Goldman Sachs analysts have estimated that copper prices will attain record highs in the coming quarters, which could help fundamentally sound copper companies generate solid revenue. Also, Chile, the world’s largest copper producer, has increased its copper price estimates for 2022 to an average of $4.40/pound.
Given this backdrop, we think it could be wise to bet on fundamentally strong copper stocks Southern Copper Corporation (SCCO) and Freeport-McMoRan Inc. (FCX), which have witnessed price dips lately.
Southern Copper Corporation (SCCO)
Phoenix, Ariz.-based SCCO, a subsidiary of Americas Mining Corporation, mines, explores for, smelts, and refines copper and other minerals in Peru, Mexico, Argentina, Ecuador, and Chile. It is one of the world’s largest integrated copper producers.
SCCO’s net sales increased 9.1% year-over-year to $2.76 billion for the first quarter ended March 31, 2022. The company’s smelted copper production came in at 157,418 tons, up 3.8% year-over-year. Its operating income came in at $1.47 billion, up 8.8% year-over-year. Also, its net income came in at $787.80 million, up 2.7% year-over-year, while its EPS came in at $1.02, up 3% year-over-year.
For fiscal year 2023, analysts expect SCCO’s revenue to be $11.64 billion, representing an 8.1% year-over-year rise. In addition, the company’s EPS is expected to increase by 21.3% per annum for the next five years. Over the past month, the stock has declined 15.8% in price to close Friday’s trading session at $61.41.
SCCO’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has an A grade for Quality and a B grade for Stability. Within the Industrial - Metals industry, it is ranked #6 out of 37 stocks. Click here to see the additional POWR Ratings for Growth, Value, Momentum, and Sentiment for SCCO.
Click here to check out our Industrial Sector Report for 2022
Freeport-McMoRan Inc. (FCX)
FCX in Phoenix, Ariz., mines mineral properties in North America, South America, and Indonesia. The company primarily explores for copper, gold, molybdenum, silver, and other metals, as well as oil and gas.
On April 21, 2022, Chairman and CEO Richard C. Adkerson said, “We have created a durable foundation for long-term success supported by a portfolio of world class copper assets, an experienced and highly motivated global team and a strong financial base. Freeport is focused on delivering value to all our stakeholders and approaching the future with confidence and excitement.”
FCX’s revenues increased 36.1% year-over-year to $6.60 billion for the first quarter ended March 31, 2022. The company’s copper sales, excluding purchases, came in at 1.02 billion pounds, up 24.1% year-over-year. Its operating income came in at $2.81 billion, up 83.4% year-over-year. Furthermore, its net income came in at $1.53 billion, up 112.7% year-over-year, while its EPS came in at $1.04, up 116.7% year-over-year.
Analysts expect FCX’s revenue to grow 19.3% year-over-year to $27.25 billion in its fiscal year 2022. Its EPS is estimated to grow 26.5% to $3.96 in 2022. It surpassed EPS estimates in three of the trailing four quarters. The stock has declined 21.1% over the past month to close Friday’s session at $37.88.
FCX’s strong fundamentals are reflected in its POWR ratings. The stock has an overall B rating, which translates to a Buy in our proprietary rating system.
In addition, it has a B grade for Quality. It is ranked #13 in the Industrial - Metals industry. Click here to see the additional POWR Ratings for FCX (Growth, Value, Stability, Momentum, and Sentiment).
SCCO shares were trading at $59.21 per share on Monday afternoon, down $2.20 (-3.58%). Year-to-date, SCCO has declined -2.60%, versus a -14.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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