Freeport-McMoRan Inc. Tumbling, Reflecting Weak Prices In Underlying Commodities

Freeport-McMoRan Inc's FCX recent weakness is a good reflection of what's been happening in much of the commodities complex, which has been miserable for the most part.

Freeport shares have long been a favorite of equity investors trying to play the moves in the commodities markets. With gold, silver, copper and crude oil all sending the same bearish message, the stock has had little choice but to tumble in recent weeks.

What The Bulls Are Seeing…

Freeport bulls love the company because of its valuation metrics: a price-to-sales of 1.62, a price-to-book of 1.72, an enterprise value greater than its market capitalization and a price-to-earnings ratio of more than 12. Earnings growth next year is also expected to be more than 16 percent.

They also like Freeport's 3.4 percent dividend yield and good cash flow numbers.

Technically, the bulls don't have much to hang their hats on, except the possibility of a rapidly developing oversold condition on the daily price chart.

What The Bears Are Seeing…

The bears, meanwhile, see a price chart that is telling of more downside to come, down to $33.50 according to most technicians. That price level would be the fulfillment of what many technicians are calling an “abc” downside correction pattern.

Fundamentally, Freeport is looking pretty good in most areas with the exception of a pretty heavy amount of debt. If rates start to rise, the pessimists say, things could get dicey.

The bulls' counter, though, is that rates will only rise if inflation becomes an issue. In the latter scenario, commodities prices would be on the rise and Freeport should see its profits improve accordingly.

Related Link: Morgan Stanley Downgrades Freeport-McMoran

The Technical Take…

From a technical standpoint, the company is in the midst of an “abc” correction to the downside with an eventual target of $33.50.

If that level of support holds up, many technicians believe a substantial upside move could commence, which would take Freeport shares to points north of $40.

Disclosure: At the time of this writing, Tim Thielen had no position in the equities mentioned in this report.