Time to Switch Out of Freeport-McMoRan

by: Marc Courtenay December 04, 2008 | about stocks: BHP / FCX / FWLT / KGC / NYX    

Marc Courtenay

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Yesterday's announcements came just after my buy limit order was executed. After reading the company's announcement that it was immediately suspending its dividend and sharply curtailing its mining operations, I knew exactly what I must do.

I've learned the hard way that when you've purchased shares of a company, and the reason that you made the purchase changes, it's time to sell, sell, sell!

I was fortunate. My buy limit order was executed at $17.80 and I was able to sell my shares of Freeport-McMoRan Copper & Gold (FCX) at $17.50. For me the sale was based on my investment disciplines and I had no choice.

"We are responding aggressively to the current market conditions, which have weakened dramatically in recent weeks," Chairman James Moffett and Chief Executive Richard Adkerson said in a joint statement.

"The suspension of our dividend reflects the sharp and rapid decline in copper and molybdenum prices, the dislocation of capital markets and the uncertain economic outlook," they said.

Sounds like FCX had no choice either. The stock price chart as of Tuesday reflects most of what its industry has suffered over the past year. It's just plain ugly:

Chart for Freeport-McMoRan Copper & Gold Inc. (<a href='http://seekingalpha.com/symbol/fcx' title='More opinion and analysis of FCX'>FCX</a>)

Now I'll be starting my research all over again looking for the next best investment in the copper and molybdenum sector, and I don't think it will be easy.

The long-term outlook might be brighter than I realize and the company's comments on that topic seemed promising and upbeat.

Freeport's moves on capex and the dividend will position the company to take advantage of an expected global economic turnaround which would once again send metal prices soaring, Adkerson said.

"We see a long-term positive market for copper." But most of us don't know what "long-term" means. Is it a year or is it ten years?

When companies like FCX suspend their dividends and drastically change their business plans, investors have to regroup and reconsider.

The time to reinvest in FCX, unless you are a true speculator, is after the trend of higher copper prices resumes and they are able to restore some sort of dividend.

In the meantime. I'd much rather buy companies like Kinross Gold (KGC) on pullbacks below $9 a share or BHP Billiton (BHP) on corrections below $25.

Another consolation prize would be to be able to pick up shares of Foster Wheeler (FWLT) if it falls back to $14 again or NYSE Euronext (NYX) should it go "on sale" again back down around the $18 level.

No matter what the sector or industry, I'm looking for value from companies with lots of cash, little debt, outstanding management and a game plan that will survive a long, harsh recession.

Do us all a favor and leave your favorite candidates and "wish list" in the comments sections below. I'll choose the best ones for some future articles.

Disclosure: Long KGC.

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This article has 20 comments:

  •  
    Dec 04 08:51 AM
    With Copper falling to a a buck and a half what would one expect from cash flows coming from a company that does nothing but produce copper? The reason you should have been buying Freeport is because of their mines, reserves and general financial health. A severe drop in dividends could have been expected by anyone picking a stock and should have been anticipated as "the" entry point if you assume that inflation is going to kick in next quarter. I congradulate FCX management for making the prudent decisions to live for another day! The story won't be much different with any other base metal miner in their class
    Reply | Link to Comment
  •  
    Dec 04 09:16 AM
    ...dang, Mark, is this really your portfolio:

    www.socialpicks.com/ma...

    ...????...do you ever think maybe you picked the wrong business to go into?
    Reply | Link to Comment
  •  
    Dec 04 09:26 AM
    Let us assume that the 2 FCX employees quoted gave the statements as quoted in this post.

    If so, they should not be in the jobs they are said to hold at that company.

    They, are typical of what US companies have for top managers these days.

    Their statement should have been as follows:

    "The dividen has been suspended so that more money is available to buy more ore reservs either directly or by the purchase of other copper mining companies. We will aslo be purchaing more new mining and processing equipment to reduce our operating costs."

    Fire the board of directors.

    Good Luck.
    Reply | Link to Comment
  •  
    Dec 04 09:32 AM
    Bummer for those who bought high, but this seems like a fine time to buy -- looking at metals and picking the strong miners who'll will pull through is my game. Also I like the manegment. Mofet is a pillar and I'd trust him. My only concern is that the stock could languish for a bit and the money may be better leveraged elsewhere. But if you wait too long, you'll miss boat back up BHP is more diversified, but will oil holding hurt in the short term? Mark's not stupid to be interested, whether you buy is just a matter of your taste for risk and how long you're willing to wait for a profit.
    Reply | Link to Comment
  •  
    Dec 04 11:27 AM
    That's the trouble with bottom-feeding: when you set your buy-stops 20% below the current price, if the order DOES execute, you'll probably going to question whether you really want the stock. There's often a REASON why a stock drops 20%.
    Oh well...I bought some FCX at 17.50 yesterday (maybe I bought the author's shares?). Haven't decided whether to sell any yet. I'll probably hang on unless the price action starts looking sketchy. At some point, copper prices will have to go back up, right?
    Reply | Link to Comment
  •  
    Dec 04 12:35 PM
    I'm grateful for you comments. After I sold FCX I decided to buy some shares of NYX at around $18.54. Today, the next day, last I checked they were at $20.76 and FCX was trading around $18. FCX will probably weather the storm and do fine in the long-term. Now, how about some comments about your best investment choices and favorite stocks? Which companies do you think are best poised to grow and thrive over the next 12 months? What lessons have you learned about investing in the stock market from your mistakes as well as your successes? Aren't we all trying to help one another improve our results? That's the beauty of a site like Seeking Alpha.
    Reply | Link to Comment
  •  
    Dec 04 02:10 PM
    I REMEMBER BUYING FCX WHEN IT WAS A $6 STOCK,

    NOT THAT LONG AGO
    Reply | Link to Comment
  •  
    Dec 04 02:24 PM
    for moly, long term[and its utilization should only grow significantly], would you consider TC as pure play? its cash and debt levels together with flexibility in resouce options should hold it in the running for the future. any views on this?


    On Dec 04 12:35 PM Marc Courtenay wrote:

    > I'm grateful for you comments. After I sold FCX I decided to buy
    > some shares of NYX at around $18.54. Today, the next day, last I
    > checked they were at $20.76 and FCX was trading around $18. FCX will
    > probably weather the storm and do fine in the long-term. Now, how
    > about some comments about your best investment choices and favorite
    > stocks? Which companies do you think are best poised to grow and
    > thrive over the next 12 months? What lessons have you learned about
    > investing in the stock market from your mistakes as well as your
    > successes? Aren't we all trying to help one another improve our results?
    > That's the beauty of a site like Seeking Alpha.
    Reply | Link to Comment
  •  
    Dec 04 02:39 PM
    Watch a good video interview with Freeport McMoran CEO, where he discusses current conditions.

    ceotalk.blogspot.com/
    Reply | Link to Comment
  •  
    Dec 04 03:07 PM
    "What lessons have you learned about investing in the stock market from your mistakes as well as your successes? "

    Sorry, Marc...I can't help you out there. Just this week I learned that I should've bought NYX yesterday. And so far this year, all I've learned is that it's possible to lose a lot of money in the stock market.

    Seriously, though, my best trades this year have been in financials (C, STT, NLY, GE)...nice panic sell-offs and good bounces. As for investments, well...ask me again in a year or two. Maybe FCX will be >$18 by then.

    "how about some comments about your best investment choices and favorite stocks."

    At the moment, I like FLR, WLT, NLY, UTX, MRK, BA, RIG. And CHC is my most recent "Phoenix stock" (bought at $0.15)



    On Dec 04 12:35 PM Marc Courtenay wrote:

    > I'm grateful for you comments. After I sold FCX I decided to buy
    > some shares of NYX at around $18.54. Today, the next day, last I
    > checked they were at $20.76 and FCX was trading around $18. FCX will
    > probably weather the storm and do fine in the long-term. Now, how
    > about some comments about your best investment choices and favorite
    > stocks? Which companies do you think are best poised to grow and
    > thrive over the next 12 months? What lessons have you learned about
    > investing in the stock market from your mistakes as well as your
    > successes? Aren't we all trying to help one another improve our results?
    > That's the beauty of a site like Seeking Alpha.
    Reply | Link to Comment
  •  
    Dec 04 09:37 PM
    Personally i believe we are in a deflationary environment and it will be a long time before we see the light at the end of the tunnel. Now would be the time to pick up midcaps that make end products, like refrigerators and commercial vehicles. I like KGC but i much prefer chinese miners with gold exposure like Zijin, which by the way, is picking up mines left and right in SA and Africa. 1.4 billion people becoming middle class? i like the odds :)
    Reply | Link to Comment
  •  
    Dec 04 09:41 PM
    BTW, i feel like another correction is in the making, not gloom and doom, just too many people calling a bottom and traders with too many shorts. Too many people feeling rosy and cherry about a recovery, no panic just calculated risk. With these factors combined....i just do not know.
    Reply | Link to Comment
  •  
    Dec 04 10:58 PM
    I'm impressed with the TC idea. Very nice balance sheet and cash flow statement. It would be helpful to know what their cash "burn rate" is and how their fourth quarter turns out. Thanks for suggesting it.


    On Dec 04 02:24 PM fran wrote:

    > for moly, long term[and its utilization should only grow significantly],
    > would you consider TC as pure play? its cash and debt levels together
    > with flexibility in resouce options should hold it in the running
    > for the future. any views on this?
    >
    >
    > On Dec 04 12:35 PM Marc Courtenay wrote:
    Reply | Link to Comment
  •  
    Dec 04 11:00 PM
    I sincerely appreciate what you shared here with all of us. I want to carefully consider your suggestions.


    On Dec 04 03:07 PM drbob66 wrote:

    > "What lessons have you learned about investing in the stock market
    > from your mistakes as well as your successes? "
    >
    > Sorry, Marc...I can't help you out there. Just this week I learned
    > that I should've bought NYX yesterday. And so far this year, all
    > I've learned is that it's possible to lose a lot of money in the
    > stock market.
    >
    > Seriously, though, my best trades this year have been in financials
    > (C, STT, NLY, GE)...nice panic sell-offs and good bounces. As for
    > investments, well...ask me again in a year or two. Maybe FCX will
    > be >$18 by then.
    >
    > "how about some comments about your best investment choices and favorite
    > stocks."
    >
    > At the moment, I like FLR, WLT, NLY, UTX, MRK, BA, RIG. And CHC is
    > my most recent "Phoenix stock" (bought at $0.15)
    >
    Reply | Link to Comment
  •  
    Dec 04 11:02 PM
    You may be right, but there's too much money being printed and the financial "pump" being primed for me to believe deflation will last more then another year. Does Bernanke and crew really fear deflation more than inflation? That is the big question.


    On Dec 04 09:37 PM cruiser9805 wrote:

    > Personally i believe we are in a deflationary environment and it
    > will be a long time before we see the light at the end of the tunnel.
    > Now would be the time to pick up midcaps that make end products,
    > like refrigerators and commercial vehicles. I like KGC but i much
    > prefer chinese miners with gold exposure like Zijin, which by the
    > way, is picking up mines left and right in SA and Africa. 1.4 billion
    > people becoming middle class? i like the odds :)
    Reply | Link to Comment
  •  
    Dec 04 11:04 PM
    Sometimes I feel like I'm contradicting myself, but your comment reminds me that there is a strong possibility we haven't yet seen the mother of all "capitulation selling" and the bottom that many think we've put in. There's just as strong a chance that we might have a bear market rally here first and then the "big test" on the downside.


    On Dec 04 09:41 PM cruiser9805 wrote:

    > BTW, i feel like another correction is in the making, not gloom and
    > doom, just too many people calling a bottom and traders with too
    > many shorts. Too many people feeling rosy and cherry about a recovery,
    > no panic just calculated risk. With these factors combined....i just
    > do not know.
    Reply | Link to Comment
  •  
    Dec 04 11:05 PM
    Good spot. Thanks for bringing this to our attention


    On Dec 04 02:39 PM Pipo wrote:

    > Watch a good video interview with Freeport McMoran CEO, where he
    > discusses current conditions.
    >
    > ceotalk.blogspot.com/
    Reply | Link to Comment
  •  
    Dec 05 07:36 PM
    some further insight today's TC news release thompsoncreek.com

    further reduced capex[2008- 2010] reaffirmed 2008, 2009 outlook. involked flexibility on 2009 production. gave current cash position+ credit line option. next earnings call should be early 2/09


    On Dec 04 10:58 PM Marc Courtenay wrote:

    > I'm impressed with the TC idea. Very nice balance sheet and cash
    > flow statement. It would be helpful to know what their cash "burn
    > rate" is and how their fourth quarter turns out. Thanks for suggesting
    > it.
    Reply | Link to Comment
  •  
    Dec 05 07:42 PM
    wrong web site given you=

    thompsoncreekmetals.co...


    On Dec 04 10:58 PM Marc Courtenay wrote:

    > I'm impressed with the TC idea. Very nice balance sheet and cash
    > flow statement. It would be helpful to know what their cash "burn
    > rate" is and how their fourth quarter turns out. Thanks for suggesting
    > it.
    Reply | Link to Comment
  •  
    Dec 09 03:02 PM
    Have to say, I think that anybody who expected that dividend to remain intact was way behind the market. The announcement of the dividend cut strikes me as a perfect buying opportunity, along with CU falling under $1.40. But then again, I'm an optimist - I don't think copper will remain under $2 for more than a year.
    Reply | Link to Comment
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