The last thing to note for Freeport is that over 1 million shares were bought indirectly by an insider who is the CEO of Freeport-McMoRan Oil & Gas, not the parent Copper & Gold. That is a nice vote of confidence from someone heading up the more hated segment of the company, but do not rely too heavily on that. The amount is large enough to be worth noting.
I think Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) will rise higher eventually, but I am starting to think it will not be till 2014 or more likely 2015. That is a long time to sit on a flat stock, though there is a dividend that yields over 4%. Results might be adversely impacted by the Grasberg closure, so I would wait a bit to find out where the bottom is.
Alcoa malaise
Alcoa Inc (NYSE:AA) needs aluminum prices to rise if it is going to see its profits grow. Right now, it is operating on paper thin margins. Margins are so thin that the company is better off cutting expenses and waiting for a favorable market rather than trying to boost returns by going for more volume. The short-term, meaning three years, looks very rough for Alcoa. I do like the long-term possibilities stemming from its extreme cost-cutting initiatives. When aluminum prices rebound, Alcoa could see massive profits since it has become a lean, mean aluminum machine.
The unanswerable question is when aluminum will rise, and whether Alcoa will be in good condition when that happens. It could be a few years judging by the overall trajectory of metals. With the recent optimism surrounding the global economy, I would think an industrial metal would start seeing increased demand, but prices still remain under pressure.
Alcoa Inc (NYSE:AA) has been hovering around $8 for a while, and if one is willing to be extremely patient, it could be a good investment. There is always a risk the company could hit a roadblock and tumble further. I would consider buying half the position I want and writing puts lower to collect the premiums or average down if I am assigned.
Conclusion
Both Freeport and Alcoa require a large amount of patience, but at least Freeport rewards you with a dividend. On the other hand, Alcoa has been stable in its $8 area and has no specific bad news. Freeport has one of its key mines shutdown, potentially for months. Metals have had it rough, and the future continues to look bleak. I would not short the stocks as Alcoa has been very stable. You would have to pay the dividend for Freeport unless it crashes quickly. You can wait for an entry, or be long and show a saint-like patience.
Nihar Patel has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Nihar is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Metals Continue to Struggle originally appeared on Fool.com and is written by Nihar Patel.
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