We recently published a list of 15 Best Stocks to Buy According to Hosking Partners. In this article, we are going to take a look at where Freeport-McMoRan (NYSE:FCX) stands against the other best stocks to buy according to Hosking Partners.
Hosking Partners was established in 2013 by Jeremy Hosking as an independent partnership that offers a single global equity strategy. The firm appeals to investors seeking long-term returns and innovative thinking employing a capital cycle approach to investing. It has a diverse set of stocks in its portfolio that belong to a variety of industries consisting of AI, shipping, and financial services, among others. Jeremy Hosking earned an MA from the University of Cambridge, after which he served Marathon Asset Management 26 years as a founding partner and lead portfolio manager. There he contributed to developing the capital cycle approach to investment.
In its recent blog about shipping, Hosking Partners believes that understanding the cycles in different classes of shipping and global trends is essential for successful investment in the industry. Currently, Shipping (covering the container, dry bulk, product tanker and LNG sub-sectors) represents 1.25% of the portfolio. Global trade has declined as a percentage of GDP since 2010 caused by deglobalization, accelerated by the COVID-19 pandemic and geopolitical instability from the Russia-Ukraine war. This trend, coupled with the energy transition, is expected to constrain future supply and increase commodity price volatility, benefiting shipping by enabling cross-border trade.
Furthermore, shipping is a significant emitter of CO2, accounting for about 3% of global emissions. Environmental regulations aim to reduce emissions, but uncertainty over future fuel technology deters investment in new ships, leading to a tighter supply. The industry’s efficiency, measured by emissions per tonne-km, remains high compared to other transport modes. The shipping industry is at a pivotal juncture, with significant transformations driven by AI, the energy transition, and ESG considerations.
Another industry that Hosking Partners talks about is copper mining. Copper is often seen as a barometer for economic health and is crucial for the energy transition, including electric vehicles, power grids, and wind turbines. Wall Street banks are optimistic about copper prices, forecasting significant gains. Citi analysts suggest that prices could surge to over $15,000 per ton in the next 2-3 years if a strong economic recovery occurs, while their base case projects a rise to $12,000 per ton with modest demand growth through 2025 and 2026. Bank of America has also increased its 2024 copper price target to $9,321 from $8,625, citing tight mine supply and high demand driven by the energy transition as key factors.
However, some experts are cautious. Colin Hamilton of BMO Capital Markets argues that commodity markets tend to self-correct, and if supply issues persist, demand may adjust, potentially leading to lower prices. Hamilton suggests that while high price targets might be temporarily achievable, adjustments in demand could follow. The market may see a modest surplus due to increased mined supply, which is projected to grow by 4-4.5%. This is largely driven by new greenfield and brownfield projects. Despite the near-term surplus, long-term scarcity is anticipated as regulatory and political challenges in South America could impede the development of new mines.
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A large open-pit copper mine with heavy machinery extracting minerals from the earth.
Freeport-McMoRan Inc. (NYSE:FCX)
Hosking Partners’ Stake Value: $62,059,381
Percentage of Hosking Partners’ 13F Portfolio: 2.29%
Number of Hedge Fund Holders: 79
Freeport-McMoRan (NYSE:FCX) is a leading global metals company with a primary focus on copper. Founded on November 10, 1987, and based in Phoenix, Arizona, the company operates extensive, long-lived assets across diverse geographic locations, boasting significant proven and probable reserves of copper, gold, and molybdenum. Key assets in their portfolio include the Grasberg minerals district in Indonesia, one of the world’s largest copper and gold deposits, as well as major operations in the Americas, such as the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America.
As one of the largest copper producers in America, Freeport-McMoRan Inc. (NYSE:FCX) enjoys a significant competitive edge, especially since expanding production in the mining industry typically requires substantial capital investment, making it hard for competitors to keep up in the short term. However, this also makes the stock vulnerable to economic downturns, as seen with the reduced demand in China. On the flip side, any economic recovery, particularly through lower interest rates, tends to boost the stock’s performance. This was demonstrated in July 2024 when revised payroll data for May suggested potential Fed rate cuts, leading to a more than 1% increase in Freeport-McMoRan’s stock. Its Grasberg mine is one of the largest globally, giving the company a significant advantage in meeting rising demand. The high setup costs and long lead times in the mining industry allow Freeport-McMoRan to establish key industrial partnerships ahead of potential competitors.
Another mining stock in Hosking Partners’ portfolio, namely, Anglo American performed better in the second quarter of 2024 by 14% when a rival miner BHP proposed a takeover bid. However, Anglo American’s share price has stumbled by 48% since April 2022 due to operational issues at its Los Bronces copper miner in Chile and constant logistical problems at its Kumba iron mine in South Africa.
Hosking Partners, on takeover bid by BHP, stated in its Q2 2024 Quarterly Commentary that,
“Anglo American’s strong contribution was the result of a bid approach by rival miner BHP, and while we are not holders of BHP, it is encouraging that a leading industry participant clearly sees the merit of a “buy rather than build” strategy, suggesting that disciplined capital allocation will continue to support the generation of steady returns on capital by companies in this sector to which we have broad exposure.”
Overall FCX ranks 10th on our list of the best stocks to buy according to Hosking Partners. While we acknowledge the potential of FCX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. 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.