Across the investments landscape, copper shines brightly at this time, not least because of its uncanny ability to diagnose the health of the global economy.
In recent years, copper has experienced a surge in demand, driven in large part by the burgeoning electric vehicle revolution, as well as the push for renewable energy sources, and the construction boom in emerging markets.
Copper may be a remarkable investment opportunity all by itself, but what are the best copper stocks to buy?
Best Copper Stocks: Freeport McMoRan
Freeport-McMoRan (NYSE: FCX) is a leading copper and gold producer, with a strong global presence and a rich portfolio of mining assets.
FCX has broad exposure to copper and as the world transitions to cleaner energy sources and electric vehicles grow in prominence, copper should remain a critical ingredient.
The company’s financial performance and strategic initiatives have impressed investors in recent years. That’s in large part due to management actively working to lower debt, boost operational efficiency, and fortify the company’s balance sheet, which currently has $8.1 billion in cash and $9.6 billion in long-term debt.
Yet while Freeport-McMoRan is tethered to growing worldwide demand for copper, management has to carefully navigate the cyclicality of the mining industry and the resulting fluctuations in commodity prices that directly affect the company’s profitability. Undoubtedly, FCX is susceptible to market volatility so a robust constitution is needed to hold the shares through boom and bust cycles.
While some analysts remain cautiously optimistic about FCX’s potential for capitalizing on copper’s bullish trend, others are mindful of the sector’s inherent risks and potential headwinds. Of 21 analysts covering the stock, the consensus forecast is that $44 per share is fair value.
Top Copper Stocks To Buy: Southern Copper Corporation (NYSE:SCCO)
Southern Copper Corporation (NYSE: SCCO) is one of the world’s largest copper producers. In Peru, it has interests in over 44,000 hectares of concessions while in Mexico it enjoys over 148,000 hectares and in Argentina over 64,000 hectares. The concessions in Chile are just north of 36,000 while in Ecuador they are just over 7,000.
Like Freeport McMoRan, Southern Copper enjoys among the lowest costs in the industry and so rising copper prices benefit the company’s profit and loss statement directly.
To further enhance margins, and the bottom line on the P&L statement, management has been investing heavily in technology and process improvements to enhance production capabilities and reduce costs.
A compelling aspect for investors is the firm’s vast copper ore reserves that provide a springboard to power future revenue growth. As copper prices rise, the company can scale up production which in turn should positively affect bottom line profits.
For income-oriented investors, Southern Copper has the added bonus of paying out 4.97% in dividends annually. The downside is the payout ratio is 90%, suggesting the dividend might be maxed out.
Like Freeport McMoran, Southern Copper has its own set of investment landmines to navigate, such as regulatory risks by operating in so many countries.
On the plus side, the company has a high return on invested capital of 18.1% and has an abundance of cash flows to service interest payments.
Copper Stocks To Watch: BHP Billiton (NYSE:BHP)
Copper is just one of the segments in which BHP Billiton [NYSE:BHP] operates. The other three are Petroleum, Coal, and Iron Ore.
If you are looking to invest in copper companies with proven longevity, you won’t do much better than BHP Billiton, which was founded in the middle of the 19th century and is based in Melbourne, Australia.
BHP Billiton explores for copper, lead, zinc, gold, iron, uranium, and molybdenum. It also mines, smelts, and refines nickel.
Because BHP Group Limited (NYSE: BHP) sells a range of commodities, including iron ore, copper, coal, and oil, investors enjoy a buffer against the inherent volatility in commodity markets.
As a key supplier of these essential materials, BHP should directly benefit from demand spikes and higher commodity prices. It’s evident from the firm’s high return on invested capital of 19.8% that management is doing an excellent job with respect to operational efficiency.
So too is the 5.5% dividend yield compelling to passive income investors, though shareholders should be wary of the payout ratio eclipsing 102%. The sustainability of the dividend is in doubt when payout ratios climb so high.
Nevertheless, BHP enjoys a moat – as Buffett might describe it – thanks to its rich resource base coupled with its operational scale and efficiency.
From a valuation perspective, BHP has upside to $63 per share according to analysts’ consensus while a discounted cash flow forecast suggests fair value sits a little higher, at $64 per share.
Copper Stocks List
For any long-term oriented investor seeking exposure to the copper industry, a rising price per pound should positively affect all of these stocks.
Rising copper prices also create an incentive for the underlying companies to ramp up production and exploration because financial margins increase.
When prices improve further, expect copper stocks to make the headlines again. And perhaps the best way to gain exposure to the commodity is to either purchase a basket of these companies or to consider a copper ETF.
Copper Stocks ETF: United States Copper Index Fund (NYSEARCA:CPER)
For investors looking for a copper stocks ETF in order to spread risk versus buying a concentrated position in a single copper stock, the United States Copper Index Fund® [CPER] is among the lowest expense ratio funds.
The United States Copper Index Fund® seeks to track the performance of the SummerHaven Copper Index Total Return, plus income from CPER’s holdings, less fund expenses.
As an investment vehicle, it is designed to be a cost-effective way for investors to gain exposure to the returns of a portfolio of copper futures contracts and is listed on the NYSE Arca.
It has the same 0.85% expense ratio, which is slightly higher than the 0.65% charged by the Global X Copper Miners ETF [COPX].
Best Copper Stocks To Buy Now: The Bottom Line
The industry leader and largest copper producer is Freeport McMoRan. Southern Copper Corporation has plans to expand production by 50% over the next few years which should move the needle on share price while BHP Billiton may have the greatest upside should new explorations uncover large new mines – the flipside is the risk is probably greatest too.
For investors who prefer a more diversified exposure to the copper market, the United States Copper Index Fund provides a low cost way to gain exposure to the returns of a portfolio of copper futures contracts.
Do you have a copper stocks list that you track? What good copper stocks have you researched that are worth investing in?
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.