We recently compiled a list of the 13 Best Commodity Stocks To Buy According to Analysts. In this article, we are going to take a look at where Freeport-McMoRan Inc. (NYSE:FCX) stands against the other commodity stocks.
Two major trends that are shaping commodity markets are the rising interconnection of the market and the increasing importance of power in the energy transition, as per a report. The link between necessary commodities for the energy transition, such as LNG and metals, grew to 56% in 2022-23, up from 27% in 2015-19. With the introduction of more than 100 new tankers in the previous three years, the supply of LNG is rising dramatically. By 2028, it is anticipated that there will be more LNG carriers than oil carriers. Flexible contracts and increased competition between Europe and Asia are the main causes of this change.
Moreover, estimates suggest that power will play a larger part in the energy transition by 2040, contributing between $1.3 trillion and $2.4 trillion, expanding at a rate of up to 5% annually. Since renewable energy is predicted to account for the majority of the power mix between 2030 and 2050, significant investments in transmission networks, flexible power assets, and renewable energy sources will be required to meet net-zero targets. Up to 50% of the steel, copper, and aluminum needed for production will come from wind turbines alone.
Meanwhile, it is becoming more difficult to reduce inflation as global commodity prices level off, according to the World Bank’s April 2024 Commodity Markets Outlook. The price decline from mid-2022 to mid-2023 was 40%, but it has since stabilized. However, since the middle of 2023, indices of commodities prices has largely not altered. The World Bank projects that global commodity prices will fall by 3% in 2024 and 4% in 2025, assuming that geopolitical tensions do not flare up again. Inflation will continue to rise above central bank targets despite this modest decline as per the report World Bank.
Oil prices are still high as the world economy is going down; Brent crude is expected to average $84 a barrel by 2024, as per the World Bank. Prices might rise above $100 in the event of global upheaval, providing investors in oil substantial profits. Secondly, due to geopolitical uncertainty and the robust demand from central banks in developing countries, gold is predicted to reach record highs in 2024. This confirms gold’s reputation as a “safe haven” asset in times of market volatility.
Moreover, the demand for metals like copper and aluminum is being driven by investments in green technologies. Already at a two-year high, copper prices are predicted to grow by 5% in 2024, while aluminum prices are forecasted to rise by 2% due to rising demand for renewable energy infrastructure and electric vehicles.
On the other hand, a report from a large US bank stated that, in May, commodity prices reached all-time highs, driven by increases of 74% in only 1.5 months for U.S. natural gas, copper, gold, and cocoa. A retreat in June was brought on by profit-taking and worries about the U.S. economic slowdown. By year’s end, Natasha Kaneva projects a 10% growth in the commodity market, citing weather-related supply chain disruptions and favorable fundamentals that might raise the price of gas, oil, and agricultural products. Energy transition commodities may see more gains from China’s decarbonization initiatives, and gold prices may reach $2,600/oz by 2025 as a result of Fed rate cuts and central bank easing.
Methodology:
We sifted through holdings of commodity ETFs to form an initial list of 20 commodity stocks. Then we selected the 13 stocks that had the highest upside potential based on analysts’ consensus. We have only included stocks in our list with an upside potential of 30% or higher. The stocks are ranked in ascending order of the upside potential.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A large open-pit copper mine with heavy machinery extracting minerals from the earth.
Freeport-McMoRan Inc. (NYSE:FCX)
Upside Potential: 31.86%
Mining company Freeport-McMoRan Inc. operates globally. Four main divisions comprise its mining operations: Molybdenum mines, South American mining, Indonesian mining, and North American copper mines. The Morenci, Cerro Verde, and Grasberg copper mines in Indonesia, the Rod & Refining operations, and Atlantic Copper Smelting and Refining are its segments. Copper sales provide the majority of its revenue.
Freeport-McMoRan Inc. (NYSE:FCX), one of the biggest producers of copper in the United States, has a considerable competitive advantage. This is because increasing production in the mining industry usually necessitates a major capital investment, which makes it difficult for rivals to catch up in the near run. Yet as evidenced by the declining demand in China, this also leaves the stock open to economic downturns. Conversely, a recovery in the economy generally results in higher stock prices, especially when it comes to a reduction in interest rates. This was illustrated in July 2024 when revised payroll figures for May indicated that the Fed might decrease rates, which caused a spike in the firm’s shares of more than 1%.
Given that its Grasberg mine is among the biggest in the world, the firm will have a major edge in satisfying growing demand. The mining industry’s high setup costs and extended lead times allow Freeport-McMoRan to develop significant industrial alliances ahead of possible competitors.
The company was upgraded by UBS from Neutral to Buy with a $55 from $54 price target, noting its improved position following Q3 price corrections and a strong copper outlook. Despite short-term uncertainties, the upgrade displays confidence in the company’s de-risked investment case and views current levels as a positive medium-term entry point.
There are 11 analysts bullish on the stock with a “buy” rating. The average target price set by analysts is $53.27, which is an upside of 31.86%.
Overall FCX ranks 10th on our list of the best commodity stocks to buy according to analysts. While we acknowledge the potential of FCX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than FCX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
