Freeport-McMoRan Inc. (FCX) awoke from the dead in 2020, entering the first uptrend since the first quarter of 2018 and doubling in price into year-end. The stock has continued its winning ways so far this January, adding another 15% while lifting to the highest high since 2014. The uptick has tracked a historic move in the copper futures market, helped along by the company's gold and fossil fuel exposure.
- Freeport-McMoRan stock doubled in price in 2020.
- The company reports fourth-quarter 2020 earnings in Tuesday's pre-market.
- The rally has now reached major resistance in the low $30s.
The mining giant reports fourth-quarter 2020 earnings in Tuesday's pre-market session, with analysts looking for a profit of $0.40 per share on $4.33 billion in revenue. If met, earnings per share (EPS) would mark an impressive twenty-fold profit increase compared to the same quarter in 2020. The stock rose 3.5% in October after beating third-quarter top- and bottom-line estimates, and it has climbed another 66% since that time.
Freeport has partially recovered from a long-term commodity decline that ended in 2020, fueled by government stimulus that could signal the start of a multi-decade inflation wave. The miner was saddled by high debt after buying into the oil and gas sector at the worst possible time in the last decade, but cost containment and the crash in bond yields have allowed the company to retire a ton of debt and strengthen the balance sheet.
Wall Street sentiment improved steadily in 2020, with consensus lifting to an "Overweight" rating based upon 14 "Buy" and 6 "Hold" recommendations. More importantly, no analysts are recommending that shareholders close positions and move to the sidelines, despite the 100% return. Price targets currently range from a low of $17 to a Street-high $38, while the stock will open Monday's session about $1.50 below the median $31 target. An additional upside is possible after this week's earnings report, given this mid-range placement.
A balance sheet is a financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a basis for computing rates of return and evaluating its capital structure. It is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders.
Freeport-McMoRan Monthly Chart (2000–2021)
The stock hit an all-time low at $3.38 in 2000 and entered a powerful uptrend, fueled by industrial development in the BRIC nations. The rally posted an all-time high at $63.62 in 2008, giving way to a vertical decline that ended in the single digits in December. Aggressive buyers returned into the new decade, lifting the stock at the same trajectory as the prior decline before it stalled out just two points under the prior high in 2011.
The subsequent decline completed a massive descending triangle breakdown in 2014, signaling a downtrend that undercut the 2008 low before coming to rest 14 cents above the 2000 low in 2016. Bulls took control into the start of 2018, carving an uptick that ended at the 50-month exponential moving average (EMA) resistance. It tested the low successfully in March 2020 and turned higher once again, completing a multi-year double bottom reversal when it mounted the 2018 peak in November.
The rally has now lifted into descending triangle resistance at the 50% selloff retracement level between $28 and $33. Theoretically, at least, this major barrier will be tough to breach in coming weeks, favoring a downturn that shakes out excess bullishness. A pullback to the red line in the lower $20s should offer a low-risk buying opportunity in this scenario, ahead of even stronger price action in coming years.
BRIC is an acronym for the developing nations of Brazil, Russia, India, and China—countries believed to be the future dominant suppliers of manufactured goods, services, and raw materials by 2050. China and India will become the world's dominant suppliers of manufactured goods and services, respectively, while Brazil and Russia will become similarly dominant as suppliers of raw materials.
The Bottom Line
Freeport stock has completed a double bottom breakout and reached major resistance in the low $30s ahead of this week's earnings report.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.