The U.S. stock market remains one characterized by considerable risk: It has shown some internal strength recently, but all its takes is one sub-expectations earnings report -- or one public policy error in Washington -- and the bears will be out in force again. Hence, discretion is the order of the day, with a premium placed on companies with demonstrated business models. With this in mind, Freeport-McMoRan is worth a review. Freeport (NYSE: FCX) is a preferred miner due to its copper and molybdenum operations. Yes, the gold operation is sexy, but the copper operation is the backbone here, with the company boasting about 100 billion pounds of proven and probable copper reserves.
Freeport's shares were hammered following the start of the global recession, as copper demand from emerging markets declined substantially. But perhaps now is a good time for investors who can tolerate moderate risk to scoop up some shares: FCX has traded recently in the $35-40 range and appears to have put in a technical bottom. The First Call F2009 / F2010 EPS estimates for FCX are 54 cents / $2.68.
To be sure, further U.S. and global economic deterioration could weigh on FCX's shares, and a pull-back to $25 is possible, but longer-term, rising, secular demand for copper, especially as the China and India markets start to recover, will support FCX's revenue and its stock price. In sum, the risk/reward for FCX with the stock near $40 looks favorable.
Stock Analysis: Freeport is a moderate-risk stock. Consider buying a 25% position in FCX now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your FCX position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $17.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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