Freeport-McMoRan Inc. (FCX) stock rallied to a five-year high on Monday, continuing a torrid advance that has booked a phenomenal 450% return since the stock fell to a four-year low in March. It is now trading above the 200-month exponential moving average (EMA) for the first time since 2014, underpinned by a perfect storm of tailwinds that have caught many analysts off guard. The uptrend also completed a monthly-scale double bottom reversal, setting the stage for even higher prices in coming years.
- Freeport-McMoRan has just confirmed the first long-term uptrend since 2011.
- Upside potential is limited to resistance in the $26 to $28 price zone.
- The stock has rallied for eight months in a row, setting off overbought technical readings.
The company mines commodity metals that were stuck in long-term downtrends until 2020, when the first half recovery wave woke the entire group from its long slumber. Copper futures tested a four-year low in March and took off for the heavens, lifting about 65% into this week's six-year high. And as everyone knows by now, gold futures mounted the $2,000 level during the summer months and could gain additional ground after working off long-term overbought readings.
Freeport has been plagued by high debt levels since buying into the oil and gas sector at the worst possible time early in the last decade. Cost containment and the crash in bond yields since the start of 2019 have allowed the company to retire a ton of old debt, dropping its outstanding balance to the lowest level since December 2012. The debt-to-equity ratio has plummeted as well, now standing at the lowest low since March 2013.
Wall Street consensus on Freeport stock has improved in recent quarters, now standing at a "Moderate Buy" rating based upon six "Buy," five "Hold," and zero "Sell" recommendations. Price targets currently range from a low of $16 to a Street-high $25, while the stock is set to open Tuesday's session less than $3 below the high target. This lofty placement predicts little additional upside, but price targets will likely go higher as metals markets add to their uptrends.
The debt-to-equity (D/E) ratio is calculated by dividing a company's total liabilities by its shareholder equity. These numbers are available on the balance sheet of a company’s financial statements.
Freeport-McMoRan Long-Term Chart (2000 – 2020)
The stock bottomed out at $3.38 in 2000 following a long-term downtrend and entered a historic advance, underpinned by rapid industrialization in China and other BRIC nations. The rally topped out in the mid-$60s in 2008, giving way to a crash into the single digits, followed by a recovery wave that completed a massive V-shaped pattern in 2011. Price action then eased into a descending triangle, breaking down at the start of 2015.
The decline sliced through the 2008 low in January 2016 and found support at the 2000 low, giving way to an uptick that failed just above $20 in 2018. The stock posted a higher long-term low during the first quarter's pandemic decline, setting the stage for a massive double bottom reversal that has just been confirmed with a rally above the 2018 peak. Despite 2020's high-percentage upside, the rally still hasn't reached the .382 Fibonacci selloff retracement level.
Freeport stock has rallied for eight months in a row, setting off overbought readings that could presage an intermediate correction into the upper teens. Even so, there's no current sign of weakness, and accumulation readings keep hitting new highs. On the flip side, upside potential is now limited to the $26 to $28 price zone, where the .382 Fibonacci retracement and 2014 breakdown should generate heavy resistance.
A double bottom pattern is a technical analysis charting pattern that describes a change in trend and a momentum reversal from prior leading price action. It describes the drop of a stock or index, a rebound, another drop to the same or similar level as the original drop, and finally another rebound. The double bottom looks like the letter "W." The twice-touched low is considered a support level.
The Bottom Line
Freeport-McMoRan stock has turned the corner after a multi-year downtrend and should add to gains in coming years.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.