Hedge Funds Are Buying These 5 Energy Stocks

2. Freeport-McMoRan Inc. (NYSE:FCX)

Number of Hedge Fund Holders: 68

BMO Capital analyst David Gagliano on April 22 gave Freeport-McMoRan Inc. (NYSE:FCX) an ‘Outperform’ rating, and a price target of $56, down from $62. Although he lowered his 2022 EPS estimates to reflect higher unit cost expectation, the analyst sees the firm well-positioned to benefit from a rise in underlying copper prices.

Out of the 900+ elite hedge funds tracked by Insider Monkey, 68 owned $4.1 billion worth of positions in Freeport-McMoRan Inc. (NYSE:FCX) at the end of March. This showed a positive trend over the previous quarter, where a total of 66 hedge funds held $3.77 billion worth of stakes in the company. The hedge fund with the largest stake in Freeport-McMoRan Inc. (NYSE:FCX) at the end of Q1 2022 was Fisher Asset Management, with 50.75 million shares worth $2.52 billion.

Horizon Kinetics LLC, an investment management firm, talked about Freeport-McMoRan Inc. (NYSE:FCX) in its Q4 2021 investor letter. The firm said:

“Those were some ideas about copper demand. Here are some specifics about supply. Global copper mine production in the 10 years from 2005 to 2015 rose 2.45% annually. In the next 5 years, to 2020, it increased by only 0.9% annually. Even ignoring the 2020 pandemic year, for the 4 years from to 2019, the expansion rate was 1.66%. We already have the historical context for this: the commodity price collapse prior to 2015, from a position of excess capacity.

What producers must do in that situation, because they have high fixed costs and debt expense, is curtail their exploration and development expenditures and reduce operating costs. They rely on existing mines, instead, and on their highest-grade ores and lowest-cost production. They might not actually reduce current production, but they aren’t replacing the reserves that are being slowly drawn down. You can see this at work at the individual company level.

Freeport-McMoRan will illustrate. It is the world’s third-largest copper producer, closely following Chile’s Codelco and Australia’s BHP Group. In 2014, even though Freeport sold more copper than the prior year, its revenues dropped by over 25%, and it went from $4.8 billion of operating earnings (a 22% margin) to a $(0.2) billion loss. The company’s capital expenditures peaked in 2014 at $3.86 billion and will be about $1.72 billion in 2021, meaning the company is spending 55% less now than it was seven years ago. In inflation-adjusted terms, it’s spending 61% less today than seven years ago…” (Click here to see the full text)