Monday, September 20, 2010

Goldman Sachs Upgrades Freeport-McMoRan on Copper Fundamentals

Looking at a chart of Freeport-McMoRan (FCX) and Copper (HGA) it would appear that Goldman Sachs (GS) is a little late to the party. Not that Stone Fox isn't appreciative that GS is pushing up one of our bigger investments. The stock trades at $83 now, but was available for only $57 when July started. Where was GS then? Not to mention that the new target of $94 doesn't provide that much upside from these levels so trade on this news with caution.
























Copper has also seen a huge rise and is now attempting to breakout and test the recovery highs around $3.60/lb. So again GS seems to have turned bullish long after a run has begun. Now to be fair, the copper inventory situation has become a lot more bullish over the last couple of months. LME copper inventories continue to plunge on a daily basis from 520k tonnes 6 months ago to 382K tonnes today.























GS comments:
  • Goldman Sachs was active in the metals segment on Monday morning. The firm upgraded Freeport-McMoRan (NYSE: FCX - News) to "Buy" from "Neutral" and lifted its price target to $94 from $79, citing a bullish outlook for the copper space. Meanwhile, gold, which accounted for about 17% of the firm's 2009 revenues, is trading at record highs. Goldman's price target represents a 15% premium to the stock's price at the end of last week.
  • Freeport-McMoRan gained 14.5% in the month ended Friday, ranking it first among Copper Stocks Index components, where aggregate performance has been in-line with the S&P 500 for the period. Other top performers include Southern Copper (NYSE: SCCO - News) and Sterlite Industries (NYSE: SLT - News), and it will be interesting to see how the sector responds to Goldman's copper commentary this week.
In other news, FCX made a $500M investment in McMoRan Exploration (MMR) to help them buy assets from Plains Exploration & Production (PXP) and invest in exploration and drilling in shallow waters off the US Gulf of Mexico. While MMR in its own right is an interesting investment, the ties between FCX and MMR have us questioning the arms length of this transaction. Something to keep any eye on as FCX should be investing in its own business rather then helping out its little brother. 

Disclosure: Long FCX

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