Copper Comeback: Freeport-McMoRan Stock Poised for Surge
20 Nov, 2023
The price of copper is on the rise again, and with it, the fortunes of Freeport-McMoRan (FCX) stock. After a challenging year, copper futures have rebounded by 5.4%, reaching $3.71 per pound, up from a multi-month low of $3.52 in late October. This upward trajectory is being fueled by a combination of factors, including lower-than-expected inflation, the potential for a Federal Reserve rate cut, and an increased appetite for commodities among investors.
The recent decline in inflation has alleviated fears of aggressive interest rate hikes, which could have dampened economic growth and copper demand. Instead, the prospect of lower rates is seen as a positive catalyst for the metal, as it could stimulate economic activity and boost copper consumption.
Additionally, a weaker dollar, a likely consequence of lower interest rates, would further benefit copper prices. Copper is traded in greenbacks, so a weaker dollar makes it more affordable for international buyers. This increased affordability could drive up demand for copper, further pushing prices higher.
These favorable conditions are also attracting investors back to commodities, including copper. Currently, the value of all commodities, excluding gold, held by nonbanks is just 0.5% of the value of all bonds, cash, and equities held. This figure is significantly lower than the post-pandemic peak of close to 0.8%, when copper prices reached $4.90.
Analysts believe that there is ample room for investors to increase their exposure to commodities, particularly given the potential upside for copper. J.P. Morgan's global head of macro, quantitative, and derivatives research, Marko Kolanovic, forecasts a 19% gain for copper over the next year.
A surge in copper prices would undoubtedly translate into higher profits for Freeport-McMoRan. With sales estimates already reflecting copper prices before the recent run-up, analysts believe that earnings could hit $2.50 per share in 2024 if copper prices reach $4. This optimistic outlook has prompted Vertical Research Partners analyst Mike Dudas to set a $57 price target for Freeport stock, representing a 58% increase from Wednesday's close.
In conclusion, the resurgence of copper prices and the accompanying positive sentiment towards commodities are paving the way for a potential surge in Freeport-McMoRan stock. Investors who are bullish on copper and the broader commodities sector should closely monitor Freeport's performance as the copper market continues to gather momentum.
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