Freeport McMoran (FCX) Looking Good

When commodities peaked July 1st last year, they took a lot of companies down with them.  One of those companies was Freeport McMoran (FCX).  The very large Phoenix, AZ based copper & gold mining company has been hammered.  Even though it’s not at its low it hit in December, it’s still down almost 80% from its all-time high.  Over $120 at one time, the company now sits around $28, but was once in the teens just a few weeks ago.  I look at the picture of FCX and I notice a few things.  First, it’s been moving sideways for a couple of months and has broken the horrible downtrend it was in for about 5 months straight.  Second, I notice there has been a lot of volume coming in the stock on the way up the last few weeks.  Third, many of the oscillators I watch have been improving for several weeks even when the stock was still going down making new lows.  

But, even more than the technicals, there’s something else special about this company, the management.  They were very quick to eliminate their dividend when things started getting rough knowing that it was going to get rougher.  Many people may argue the last thing a company should do is penalize the investor and cut the dividend.  I don’t feel that way.  The economic environment changed rapidly and even the best management can’t avoid that type of downturn.  So, eliminating the dividend was a smart move and a swift move (take note banking industry).  Secondly, I read today that two top executives at the company are giving up their bonuses (take note banking industry).  This is how you manage.  You do what’s necessary to get your company back to profitability and you stay around to benefit from a recovering economy.  

With the baltic dry index going up fast the last several days, this implies some international business pick up.  Is it China?  Who knows.  But if the economy does start to improve sooner than later, there will be another run in commodities and especially the mining companies.  I don’t believe the economy is improving just yet.  But, the chart looks fabulous.  If this market continues to bounce around, FCX may be worth a trade.  If it breaks above $30, I’d look for it to reach the high $30s soon.  I don’t own any shares just yet.

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1 Response to “Freeport McMoran (FCX) Looking Good”

  1. 1 Hedge February 6, 2009 at 4:40 am

    I agree with your “take note banking industry” side comments. I remember reading an article sometime around mid 2008 that mentioned that the total size at that time of the known capital write-downs at the banks just about matched the sizes of their dividend payments. I realize that might have been asking too much of them to have had better foresight, but when management sees that they are going to be required to take write-downs that will hit their capital, and capital is all-important to the banks, they should have begun doing the big things to preserve all the capital that they could. Yes, they would have taken big hits to their share prices, but they wound up doing that anyway.

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