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Can FCX Stock and Copper Rise More in 2020?

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  • Freeport-McMoRan (FCX) stock gained more than 27% last year and outperformed the SPDR S&P Metals and Mining ETF (XME). The stock was on a roller coaster last year amid the trade war noise.
  • However, the stock recouped the losses in the fourth quarter. Signs of stability in the Chinese economy and optimism about phase one of the US-China trade deal lifted the metals and mining sector in the fourth quarter. Will the momentum continue this year?
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FCX stock

Freeport-McMoRan stock had a volatile ride last year. The year started off well amid optimism about the US-China trade deal. The stock did well until mid-April. The US-China trade deal was on track and the two countries were looking for a location to sign the trade deal. In May, President Trump announced tariffs on Chinese goods. He accused China of reneging its commitments. FCX stock lost more than 21% in May. The stock also hit a 52-week low in May and tracked the weakness in the metals and mining space. Since China is the biggest consumer of most metals and the biggest price driver, the sector’s fortunes are closely tried to its economic health.

A play on the trade war?

Freeport-McMoRan recovered some of the lost ground in June and July. However, the company fell in August due to an escalation in the trade war. In August, President Trump officially declared China as a “currency manipulator.” The two sides imposed more tariffs. FCX stock hit another 52-week low in August and closed the month with almost a 17% loss. Overall, FCX was trading with a year-to-date loss in the first three quarters of 2019. However, the fourth quarter finally brought some good news for Freeport-McMoRan investors. The stock rose 37% and outperformed the broader stock markets. Rising copper prices had a positive impact on the stock in the fourth quarter.

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Stock and copper prices

Freeport-McMoRan is a pure-play copper miner. The stock has a high correlation to copper prices. In the fourth quarter of 2019, copper led the gains in the base metals pack. Several factors supported the fourth-quarter rally for copper and FCX stock. First, several Chinese economic indicators showed signs of bottoming out in the economy. China’s unwrought copper imports also rose to a record high in November, which supported copper prices. Optimism about phase one of the trade deal lifted copper and the metals and mining sector in the fourth quarter. The US and China agreed to phase one of the trade deal in December. Overall, FCX stock was largely a play on the trade war last year.

Can Freeport-McMoRan rise more?

Phase one of the US-China trade deal will likely be signed this month. Could the trade deal’s signing lift FCX stock even more? Since trade war news has driven FCX over the last year, the signing of phase one of the trade deal could take the stock to even newer highs. However, we also need to consider that the trade deal is already baked in stock prices. If anything, there could be some negative surprises from the trade deal.

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In December, I noted that booking profits in FCX stock amid the trade deal optimism would be the correct strategy. The stock has fallen from those levels. Looking at the current macroeconomic scenario, Freeport-McMoRan could face pressure amid the US and Iran tension. Notably, copper is one of the most sensitive metals to global geopolitical developments.

Analysts’ expectations

Wall Street analysts don’t see much upside in FCX stock either. The stock’s mean consensus target price represents a potential upside of 6.7% over the next 12 months. Among the analysts, 12 have given Freeport-McMoRan a “buy” or higher rating, while nine have given it a “hold” or equivalent rating. The consensus view is actually positive on copper as well as copper miners for 2020. However, in my view, geopolitical tensions could cap copper’s upside in 2020. Steel could be another contra play for 2020. While Wall Street is overly bearish on the sector, the fortunes don’t look that dismal. Read Could US Steel Stocks Be a Contra Play in 2020? for more analysis.

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