Incredibly Wrong on this Copper Company

• Bonds on fire...
• A huge mistake on my part
• Here's what happened

Bond markets are ablaze lately as prices fall and yields surge.

You can see that rates on US 2 year, 3 year, 5 year and 10 year Treasury debt are on the rise:

I could go on, but I covered this story yesterday.

Today, I want to discuss a huge mistake I made about one of my favorite copper investments. I like to point out my mistakes because it keeps me humble and honest. If I only point out my successes, you're likely to (correctly) assume that I'm cherry-picking my track-record.

I also think you'll agree that learning from mistakes is a lot more fun for you, as a reader, if I'm making them instead of you.

Two months ago, I believed that Ben Bernanke's then-impending announcement of Quantitative Easing 2 (QE2) was likely to disappoint the market.

Here's what I said on October 27^th - about a week before Bernanke's announcement:

“Wait for what I believe will be a substantial correction, and therefore, a buying opportunity for physical gold and silver next month when Ben Bernanke announces his plans for Quantitative Easing.

I'd look for a 5-10% correction following his announcement as a great time to make some purchases. In the meantime, there's a specific stock opportunity that's shaping up nicely.“

Back then, I was licking my chops in anticipation of a short-term sale of my favorite stocks. That sale never came. I advised waiting for a correction. The correction simply didn't occur.

The market took Bernanke's announcement as a formal, gold-plated, signed, sealed and delivered invitation from the Federal Government and their prodigiously overactive printing press to go out and buy the hell out of nearly every asset class in existence.

Even the dollar rose...

The “specific stock opportunity” I refer to was in my favorite copper company, Freeport McMoran Copper and Gold FCX.

On September 1^st, I recommended buying Freeport under $80 a share, and I was hoping (praying) that it would breach that price again.

So what happened to Freeport after Bernanke's announcement?

Well, take a look for yourself:

Instead of dipping back below $80, the stock had a brief dip to just below $100, and is now flirting with $115.

The lesson to learn here: when the Federal Reserve chairman tells you that he's going to print up a bunch of money in order to spur growth, maybe you should stick to your guns and buy the kinds of high-quality commodity stocks that you actually want to own.

In any event, I didn't get the story totally wrong. I still like Freeport as a long-term holding, and had you bought it when I first wrote about it on September 1^st, you'd be sitting on some cushy 51% gains.

So...is Freeport still a compelling stock to buy now?

Here's what I wrote about this company back on September 1^st - and I think it still rings true:

“This company has estimated copper reserves worth over $300 billion.

It has gold and silver reserves worth over $55 billion.

It also has molybdenum (a metal used in making steel and other heat-intensive alloys) reserves worth over $30 billion.

Today, this company has a market cap of just $33 billion. Each share costs $72, which gets you about $70 worth of molybdenum, with $100 worth of gold and silver, and $600 worth of copper thrown in for free.

If you're bullish, this company is one of the largest copper miners in the world. If you're bearish, they have healthy precious metal reserves.

If you want a two-for-one hedge, they have both.”

Freeport is currently selling for just over 14 times trailing year earnings, which is relatively inexpensive for the sector.

I'd recommend picking up shares of this company on any weakness. I know that's kind of a cop-out - but the fact is that copper prices are on fire, the dollar is looking more doomed every day, and this company is among the most profitable of any copper miner in the world.

Here's to learning from mistakes,

Kevin McElroy

Editor

Resource Prospector

disclosure: no positions in Freeport as of this writing