In this article, I evaluated Freeport-McMoRan Inc. (FCX) and Southern Copper Corporation (SCCO) to predict the industrial stock leader. After thoroughly evaluating these stocks, I think SCCO might be a superior choice for the reasons discussed in this article.
Rising demand for base metals from the electrical & electronics, and automotive industries is projected to drive the metal market growth. Base metals are widely used in the manufacturing of electrical & electronic components. Furthermore, growth in global EV production is anticipated to provide lucrative opportunities for metals like nickel, copper, and aluminum.
Therefore, the global base metal mining market is expected to expand at a CAGR of 3.8% until 2030.
Additionally, favorable government initiatives such as the $1.2 trillion Bipartisan Infrastructure Bill, later signed into law, dedicated new federal spending to America’s infrastructure, potentially boosting the demand for metals, machinery, and other necessary industrial products.
While FCX declined 8.2% over the past nine months compared to SCCO’s marginal gain, FCX has also declined marginally over the past year compared to SCCO’s 27.9% return.
Therefore, here are the reasons why I think SCCO might perform better in the near term:
Recent Developments
During the recent quarter, FCX revealed that it is advancing plans to invest in water infrastructure to provide options to extend existing operations, while continuing to monitor Chile's regulatory and fiscal matters, as well as trends in capital costs for similar projects.
Conversely, during the recent quarter, SCCO revealed that they had built a new concentrator plant in the Buenavista Zinc - Sonora project, which is located within the Buenavista deposit. This facility has a production capacity of 100,000 tonnes of zinc and 20,000 tonnes of copper per year. When operating, the concentrator will double the Company’s zinc production capacity and will provide more than 2,000 jobs on the operating front.
Recent Financial Results
For the third quarter ended September 30, 2023, FCX’s revenues increased 16.4% year-over-year to $5.82 billion. Net income attributable to common shareholders and net income per share increased 12.4% and 10.7% year-over-year to $454 million and $0.31, respectively. However, total costs and expenses increased 7.2% year-over-year to $4.33 billion.
On the contrary, SCCO’s net sales increased 16.2% year-over-year to $2.51 billion in the fiscal third quarter that ended September 30, 2023. Net income attributable to SCCO came in at $622 million, up 19.4% from the year-ago quarter. Net earnings per common share attributable to SCCO increased 19.4% year-over-year to $0.80.
Past And Expected Financial Performance
Over the past three years, FCX’s revenue gained at an 18.6% CAGR. Analysts expect FCX’s revenue to decline marginally this year and in the fourth quarter ending December 2023. Its EPS is expected to decline 33.6% in the current year and 32.6% over the fiscal fourth quarter (ending December 2023).
Conversely, SCCO’s revenue has increased at a CAGR of 11.6% over the past three years. Its revenue is expected to increase marginally in the fiscal year ending December 2023. Its EPS is expected to rise 10.3% in the fiscal year ending December 2024 and 11.8% in the fiscal second quarter ending June 2024.
Valuation
FCX’s forward non-GAAP P/E multiple of 24.23 is higher than SCCO’s 23.35. However, FCX’s forward EV/Sales multiple of 3.09 is lower than SCCO’s 6.37.
Profitability
FCX’s trailing-12-month gross margin of 39.34% is lower than SCCO’s 55.77%. In addition, FCX’s trailing-12-month EBITDA margin of 36.51% is lower than SCCO’s 52.95%.
Thus, SCCO is more profitable.
POWR Ratings
FCX has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, SCCO has an overall rating of B, translating to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. FCX has a C grade for Stability, which is justified by its 24-month beta of 1.36. On the other hand, WMT has an A grade for Stability, which is in sync with its 24-month beta of 0.88.
Among the 33 stocks in the in the Industrial - Metals industry, FCX is ranked #14, while SCCO is ranked #10.
Beyond what we’ve stated above, we have also rated both stocks for Value, Momentum, Growth, Quality, and Sentiment. Get all FCX ratings here. Click here to view SCCO ratings.
The Winner
The industrial industry is witnessing solid growth driven by favorable government initiatives and growing demand for metals in various industrial productions. Industry players such as FCX and SCCO are well-positioned to benefit from these industry tailwinds.
However, FCX’s lower profitability and high beta values make its competitor, SCCO, the better buy here.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Industrial - Metals here.
What To Do Next?
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SCCO shares were trading at $73.89 per share on Monday afternoon, down $2.85 (-3.71%). Year-to-date, SCCO has gained 28.87%, versus a 20.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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