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Energy

Is Freeport-McMoRan Inc’s 100.74% YTD Rally Sustainable?

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Investors seem to be overoptimistic on Freeport

Freeport-McMoRan Inc.’s (NYSE: FCX) year-to-date stock return of 100.74% seems appealing, but investors remain concerned if this strong rally could sustain going forward. Many fear that this could be the right exit point to sell the shares. However, we believe the rally would sustain for long, but investors should maintain their cautious watch on stock. The recent surge in stock prices was caused due to rally in copper prices, which made investors optimistic.

Price of copper is referred to as a benchmark, which is used in Power and Construction industry. Prices surged by around 0.4% at start of the current weak, and later surged to a several-year high of $5,569 per ton. This performance was exhibited after the surge in price by 11.2%, last week. Un till October 2016. LME copper price had shown a decline of less than 1%, but after accounting for the movement in November, the price has surged by 18.2%.

Investors should remain intact with their investments if they continue to remain bullish on copper prices, which remain promising due to two major factors. Firstly, China, the largest copper market globally, consumes around 40% of world’s copper supply. Analysts believe that infrastructure in the country is expected to develop further, which may further push copper prices higher. In first ten months of 2016, the investments in fixed assets increased by 8.3%. This has sent positive signals to the copper markets, and other related industries.

Secondly, Mr. Donald Trump, who was recently elected as President of US, has vowed repeatedly to increase spending in country’s infrastructure. He has promised to build schools, airports, tunnels, hospitals, bridges, and expects an investment of around $1 trillion in the upcoming decade. This would definitely boost the demand for copper, and create a balance in supply and demand for the metal market and make room for higher prices.

Higher copper prices would drastically improve the company’s performance. However, the risks remain severe, but if one is optimistic on copper prices, Freeport-McMoRan is the key stock for your portfolio.

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