Joy Global Inc. (JOY), Freeport-McMoRan Copper & Gold Inc. (FCX), Southern Copper Corp (SCCO): Early Signs of Improvement in China

During a recent industrial conference, the CEO of Joy Global Inc. (NYSE:JOY) discussed several positive signs for future growth in China.  Some excerpts are shown below.

“In the international markets, commodities are very, very dependent upon China. And China had its own headwinds through most of 2012. But in the latter half of the year, we started to see improvements in fundamentals. And we look at things that both are more discretely measurable and things that are more directly — have more direct impact on our business. So we looked at electricity demand in China. We saw that turn in September and has been consistently improving month-over-month for the last 5 months.” – Michael W. Sutherlin, CEO of Joy Global Inc. (JOY) during presentation on February 20^th.

To act on this idea that China is in the early stages of improvement, there are a wide variety of potential investments.  I think the cheapest of all are the copper miners, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and Southern Copper Corp (NYSE:SCCO).

As Mr. Sutherlin mentions, commodity prices are very dependent on China. Copper prices have had a rough year: the most liquid copper ETN, iPath Dow Jones UBS Copper Total Return Sub-Index ETN, is down 5% thus far this year – with the S&P up 6%. The drop in copper prices has hurt the two copper major copper miners.

Freeport-McMoRan is down a surprising 8% YTD.  The company recently announced that it is acquiring Plains Exploration and Production and McMoRan Exploration, two oil companies.  These acquisitions will give the company exposure to new commodities as well as a whole new set of operational risks.  Due to these risks, Freeport is trading with a PE ratio below 10 and sports a yield of almost 4%.  Over the past three years, whenever Freeport-McMoRan has yielded 4%, shares have bottomed.  The chart below, from marketwatch.com, illustrates this.  From this chart, investors interested in buying Freeport-McMoRan have a clear entry point.

A drawback of investing in Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) is volatility, as shown in the chart above.  Investors who aren’t comfortable with that level of volatility should look to the other major copper producer.