Southern Copper Corp (SCCO) Slides After Ratings Downgrade

One of the company’s competitors that is taking active steps to mitigate its business risk is Freeport-McMoRan Copper & Gold Inc (NYSE:FCX). Freeport has decided to minimize its risk by reducing its dependence on the copper business and by undertaking other businesses. In an attempt to pursue the diversification, the company has recently acquired two oil and gas exploration companies, i.e. McMoRran Exploration and Plains Exploration and Production. The reason cited by Freeport for moving away from the copper business is the slow global demand and deferred profit generation from new projects.

BHP Billiton Limited (NYSE:BHP) is another company that operates in the copper industry. BHP was required to part ways with a $20 billion copper production project due to the weak prospects. The reason why BHP is not influenced by declining profitability of copper business is that it is very well diversified. There are other business segments related to natural resources that are being managed by the company, therefore BHP’s business risk is already minimized. Thus, it can be said that the decline is being witnessed throughout the copper industry; and if Southern Copper is to enhance its financial performance, an increased business diversification will be one way to pursue it.

Bottom Line

After the analysis of multiple factors influencing the market performance of Southern Copper Corporation, in my opinion, investors should sell the shares of the company. The rationalization behind this recommendation is that the shares are currently being traded near to their 52 week high and the share price is expected to decline in the foreseeable future. Therefore, at this point, it may be a favorable decision for investors to sell their shares. This decision is also valid for long term investors as the dividend payout is expected to decline in the upcoming financial periods.

The article Southern Copper Slides After Ratings Downgrade originally appeared on Fool.com and is written by Muhammad Bazil.

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