Should You Buy Freeport-McMoRan Copper & Gold Inc. (FCX)?

Rio Tinto plc (ADR) (NYSE:RIO) traded for $73 per share as recently as the beginning of 2011, and now exchanges hands for nearly half that.  As a result, the stock’s yield is above 4%.

Dig deep for value and income

The stunning fall from grace for each of these companies, including Freeport, belies some fairly solid underlying fundamentals.

In its most recent earnings release, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) reported profit that beat analyst expectations. Net income per share fell 15%, but the drop wasn’t as bad as feared given the aforementioned bludgeoning in copper and gold prices.

Freeport’s first-quarter copper sales actually rose 15%, showing the results of a concentrated effort to ramp up production. Freeport’s $9 billion acquisition of Plains Exploration and McMoRan Exploration are designed to further this strategic priority going forward.

Moreover, to help protect itself against the volatility of its underlying commodities, Freeport maintains a very strong financial position and rewards shareholders with a hefty dividend.

To illustrate, consider that at the end of the last fiscal quarter, Freeport held more than $9.5 billion in cash and equivalents on its books, amounting to 37% of its entire market capitalization.

Freeport’s current ratio stands at 5 times, meaning the company has $5 in current assets for every $1 in current liabilities. The company’s long-term position looks sound as well, evidenced by the fact that Freeport’s long-term debt to equity ratio is under 50%.

Freeport also pays a solid 4.5% dividend yield and has aggressively raised its dividend over the past few years. Freeport provided investors a 25% pay raise just last year.

Prices of precious metals are hard to predict and often swing wildly. As a result, investors should expect continued volatility from miners like Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX). However, if you can put aside the psychological distress of volatility, there’s a long-term buy-and-hold case to be made for Freeport.

Namely, the company’s resilient operations, rock-solid balance sheet, and compelling dividend should more than put your mind at ease. Assuming copper and gold prices don’t stay at depressed levels forever, Freeport McMoRan represents a compelling buy at these levels.

Robert Ciura has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Should You Buy Freeport McMoRan? originally appeared on Fool.com is written by Robert Ciura.

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