Freeport-McMoRan Copper & Gold Inc. (FCX), Southern Copper Corp (SCCO): Avoid Copper and Steel for the Time Being

A foolish note

In brief, I believe China’s PMI contraction will have a significant impact in various sectors. The copper-production companies should see a deep impact in their revenue due to a weak demand for the commodity.

Although Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) is trying to hedge this adverse condition by diversifying into oil exploration services, I believe investors should avoid investing in this stock as revenue is mainly comprised of metal sales.

Southern Copper Corp (NYSE:SCCO) is experiencing shrinks in its free cash flow. If revenue keeps falling short, the company will not have enough cash to pay its duties, and the company could slash its dividend offer. Investors should not be exposed to the company if this happens, so they should steer away from it.

Finally, the demand for steel is expected to be weak since China’s urbanization program is expected to slow down. This will create huge supplies for the commodity putting downward pressure in prices. It is likely that U.S. Steel’s revenue will fall short in coming quarters, and investors should also avoid this stock.

Overall, investors should put their money to work in another sector for the time being.

The article Avoid Copper and Steel for the Time Being originally appeared on Fool.com.

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