We recently compiled a list of 10 Best Basic Materials Stocks To Buy Now. In this article, we will look at where Freeport-McMoRan Inc. (NYSE:FCX) ranks among the best basic materials stocks to buy now.
The specialty chemicals industry holds the highest market weight (41.75%) among the several industries that make up the basic materials sector, despite its modest year-to-date return of 7.20%. Among the top performers in this industry are copper and gold, which had YTD returns of 28.25% and 28.32%, respectively. Additionally, building materials have grown rapidly, yielding a 19.46% YTD return. Nonetheless, several sectors of the economy are struggling. For example, steel and agricultural inputs have negative year-to-date returns of 13.78% and 2.08%, respectively. Coking coal lags with a YTD return of -19.12%, while other top performers include aluminum (33.03%), other precious metals & mining (48.76%), and silver (42.01%). Lastly, the chemicals industry has achieved a 3.17% YTD return. Overall, all industries in the basic materials sector experienced a 10.40% YTD return.
Amidst the basic material sector’s growth, as per Deloitte’s, the future of materials insights: science and technology have advanced to the point where scientists can now design materials with specific purposes, which fosters innovation in the chemical industry. Stakeholders are pressing companies to reassess the life cycle of their products with an emphasis on lowering emissions as sustainability gains prominence. Offering products to companies that make electric vehicles rather than those that make internal combustion engines, for instance, might drastically reduce scope 3 emissions. Involvement in circular ecosystems provides a viable way to reduce waste and provide new value opportunities. Although there are still obstacles to overcome, bio-based feedstocks have the potential to lower emissions and improve supply chain resilience. Furthermore, by solving the shortcomings of conventional mechanical recycling techniques, circular solutions like chemical recycling and carbon capture and utilization (CCU) offer creative end-of-life possibilities for materials.
Meanwhile, according to Fidelty, the financial services corporation, the materials market affected by recession worries, which is strongly tied to the economic cycle, produced solid but slow returns over the previous year. It follows general economic patterns in rising and falling levels as a cyclical industry. Materials stocks have been undervalued as the economy stands on the verge of a recession. A more positive economic picture in 2024, though, would act as a spur to expansion. Early phases of economic recovery have historically seen strong performance from this industry, and favorable supply-demand dynamics, especially among copper miners and American chemical manufacturers, could offer long-term investment opportunities. The industry may perform better as the economic cycle develops, setting it up for a potential comeback. As per Ashley Fernandes, Fidelity Sector Portfolio Manager:
“This cyclical sector could be well positioned if or when the economy improves.”
However, the ING Group, in its 2024 outlook report for the materials sector, pointed out the possible risks for iron ore:
“Looking further ahead, downside risks include China looking to replace older steel capacity with electric arc furnace capacity in order to help the country meet its decarbonisation goals. Growth in electric arc furnace (EAF) capacity at the expense of basic oxygen furnace (BOF) capacity will be a concern for the medium to long-term outlook for Chinese iron ore demand, reflecting increasing secondary production. Currently, 9.5% of China’s steel capacities are electric steel mills. The country plans to increase the share of steel from EAFs to 15% by 2025 amid a drive to reduce carbon emissions, increasing its appetite for ferrous scrap. China aims to achieve carbon neutrality by 2060.”
Methodology:
We sifted through holdings of Basic Materials ETFs and online rankings to form an initial list of 20 Basic Materials stocks. Then we selected the 10 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. We have used the stocks’ market cap as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
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)
Freeport-McMoRan Inc. (NYSE:FCX)
Number of Hedge Fund Holders: 79
Freeport-McMoRan Inc. (NYSE:FCX). is a global mining company. Its mining operations are divided into four main divisions: molybdenum mines, South American mining, Indonesian mining, and copper mines in North America. The Morenci, Cerro Verde, and Grasberg copper mines in Indonesia, the Rod & Refining operations, and Atlantic Copper Smelting and Refining are its reportable segments. The sale of copper provides the majority of its revenue.
One of the biggest producers of copper in the world, Freeport-McMoRan Inc. (NYSE: FCX) gains from its expansive operations and adaptable production capacities. The demand for copper is a key factor in the stock’s performance, and the global electrification trend and China’s stimulus programs have recently fueled advances.
Orest Wowkodaw, an analyst with Scotiabank, raised the company’s price target for Freeport-McMoRan from $52 to $53 and maintained a Sector Perform rating for the shares. The analyst informs investors that the company expects miners to report somewhat mixed financial results for the third quarter of 2024, with lower mineral prices offsetting better operating performance. Scotiabank’s current projections are significantly lower than consensus expectations, and the business anticipates considerable negative consensus revisions in the coming weeks. The firm also believes that the market will pay close attention to updates on specific project ramp-ups and possible modifications to negative forecasts.
On the other hand, Freeport-McMoRan was upgraded by UBS from Neutral to Buy, with a price objective of $55, up from $54. According to the analyst’s research note to investors, positioning for copper has improved since the third quarter price correction, and the fundamental outlook for the metal is still favorable. Although the company recognizes near-term risks from consensus downgrades, UBS views current levels as an appealing medium-term entry-point and believes the Freeport-McMoRan bottom-up investment case is largely de-risked with the completion of the smelter and the anticipated extension of the license at Grasberg.
Ken Fisher’s Fisher Asset Management is the largest shareholder in the company from among the funds in Insider Monkey’s database. It owns 58,016,901 shares worth $2.82 billion as of Q2.
Overall FCX ranks 1st on our list of the best basic material stocks to buy now. While we acknowledge the potential of the 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.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published on Insider Monkey.
