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Tickers in this Article: FCX, PCU
It's a familiar theme by now: Resources stocks were among Wall Street's most beloved issues for 2007 and half of 2008. Getting a boost from an unprecedented commodities bull market, shares of copper miners surged to new heights. Of course, the next chapter in the story is grim, as copper joined other commodities in seeing its price dramatically pared; related stocks followed suit.

A recent rebound in the shares of copper miners hasn't brought stock prices close to their previously lofty levels, but the rebound may be a telling sign that the group has indeed put in a bottom and is poised to regain some of its lost luster. In fact, January was the first month since June 2008 that copper prices rose, finishing the month up 3.4%.

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Copper's Luster Returning
Copper prices have been driven lower by weakened demand from the construction, housing and electrical components industries, so any good news coming out of the theses sectors is bound to be good news for copper miners.

Let's take a look at some of the major copper and gold miners and their recent performances:

Company 2008 YTD 2009*
Freeport McMoRan Copper & Gold (NYSE:FCX) (75%) 20%
Souther Copper (NYSE:PCU) (50%) 1.3%
*As of market close February 9, 2009


It's All About Demand
Copper stocks are unlike gold stocks in that copper equity prices have an almost direct correlation to the price of the underlying commodity, whereas shares in gold miners tend to lag the price appreciation in spot gold prices. Think about it this way: How many times have you wondered why your shares in a firm like Barrick Gold (NYSE:ABX) haven't taken off when gold prices move consistently higher?

Shares of company like Freeport McMoRan are directly tied to copper demand, and if that demand wanes as it did last year, Freeport's shares are bound to decline as well.

Speaking of Freeport, once upon a time, this stock traded for well over $100 a share - now it can be had for less than $30. It even traded in the teens as recently as December. The shares seem to be poised for a rebound as they have gained nearly $8 (30%) in the past two weeks, and this was in the face of some weak earnings news. The company took $12.6 billion in write-downs tied to copper's slump, halving its book value by $6.75 billion at the end of 2008. (Book value shows your portion of the shareholder pie. Check out Digging Into Book Value.)

Potential investors should be aware that the company is planning to raise $750 million through a new equity offering, but its debt service schedule appears manageable, with no more than $250 million of $7 billion coming due prior to 2014. Freeport currently trades at 5.2 times book value and its enterprise value of almost $22 billion is nearly twice its market cap. The company also has $872 million in cash on its balance sheet, so there are several positive factors here.

Southern Comfort?
Southern Copper's story closely resembles that of Freeport, its smaller rival. Southern Copper even took a sizable write-down that turned what would've been a profitable fourth quarter into a losing one. The company recently slashed its dividend, but it did repurchase 30 million shares and the stock still trades at a fair 2.8% yield.

When Peru-based Southern Copper reported its fourth-quarter loss, it was the company's first loss in a decade, but that hasn't stopped the company from seeking growth opportunities. Last week, the company said it would acquire Canadian rival Frontera Copper for about $40 million. Southern Copper now trades at less than four times book value and has almost $780 million in cash compared to what appears to be a manageable $1.2 billion in debt.

Bottom Line: Maybe Early, But Better Than Late
It is interesting to note that copper prices generally reach their bottom and begin to move up before the rest of the market. If that scenario is playing itself out again, now may be the time to take a serious look at Freeport McMoRan and Southern Copper. In the essence of prudence, a small nibble at these shares could serve a portfolio well and an addition to the position upon increased demand from emerging markets and the housing sector would be a smart move, too. That said, there is no need to overweight a portfolio in metals stocks of any kind right now, so wait for confirmation before making a big move. (Find out which futures, options or funds will be your perfect commodity portfolio fit in How To Invest In Commodities.)

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