The price of copper, which has faced challenges throughout the year, is showing signs of recovery, and this could bode well for Freeport-McMoRan stock.
Recent Developments: Copper prices are on the rise following a tough year. One contributing factor to this upward movement is the lower-than-expected inflation rate this week. This has led to speculation that the Federal Reserve might not only refrain from increasing interest rates further but could potentially cut rates. Such a move could support economic demand and, consequently, drive up the price of copper. The metal, extensively used in automobiles, machinery, and various products, stands to benefit from lower interest rates, which could weaken the dollar (the currency in which copper is priced).
Optimism for Copper: Several factors are contributing to renewed optimism for copper. Despite not reaching the projected $5 value, this week's decline in interest rates has sparked confidence and could encourage traders to allocate more funds to commodities like copper.
Market Conditions: J.P. Morgan data indicates that the current value of all non-gold commodities held by nonbanks is approximately 0.5% of the combined value of bonds, cash, and equities. This is a decrease from the post-pandemic peak of nearly 0.8%, suggesting that portfolios have room for increased risk in commodities. Marko Kolanovic, J.P. Morgan's Global Head of Macro, Quantitative, and Derivatives Research, forecasts a 19% gain for copper over the next year.
Potential Impact on Freeport: A rise in copper prices could lead to higher profits for Freeport. With sustained high copper prices, sales estimates may increase, assuming moderate volume growth, as seen in the third quarter. Earnings estimates could outpace sales due to the company's significant fixed expenses. Current estimates are based on copper prices before the recent surge, with analysts anticipating $23.85 billion in 2024 sales and earnings per share of $1.91. If copper returns to the $4 level, as predicted by some analysts, 2024 earnings could reach $2.50.
Analyst Predictions: Vertical Research Partners analyst Mike Dudas has a $57 price target on Freeport stock, indicating a potential 58% increase from the recent closing price.
In conclusion, the resurgence of copper prices could bring significant benefits to Freeport-McMoRan stock, creating potential opportunities for investors.
Investment Disclaimer:This article is provided for informational purposes only and does not constitute investment advice, a recommendation, or a guarantee of future results. Investors should conduct their own research and seek professional advice before making investment decisions.