Can This Stock Go Higher?

Is Southern Copper (NYSE: PCU  ) headed higher, or lower?

That's the question we ask when we evaluate insider buying and selling. We ask because how executives spend their paychecks is often a reflection of what they think of their companies' prospects. Here's how CEO Oscar Gonzalez Rocha and his team have spent their money over the past year:

Insider Rating

Bullish
High-volume buying far outweighs selling. Largest executive purchase made in August.

Business Description

Operates mines in Peru and Mexico that primarily extract copper, but also molybdenum, zinc, and precious metals.

Recent Price

$35.86

CAPS Stars (out of 5)

****

Percentage of Shares Owned by Insiders

0.07%

Net Buying (Selling)*

$5.31 million

Last Buyer (% Increase)

Oscar Gonzalez Rocha, President and CEO
10,000 shares at $28.39 apiece on Aug. 26
(Purchase bolstered direct holdings by 8.7%)

Last Seller (% Decrease)

Luis Miguel Palomino Bonilla, director
1,200 shares at $28.10 apiece on Aug. 21
(Sale represented 40% of direct holdings)

Competitors

Freeport-McMoRan (NYSE: FCX  )
Taseko Mines (NYSE: TGB  )
BHP Billiton (NYSE: BHP  )

CAPS Members Bullish on PCU Also Bullish on

Apple (Nasdaq: AAPL  )

CAPS Members Bearish on PCU Also Bearish on

Vale (NYSE: VALE  )

Recent Foolish Coverage of PCU

Make This Mine Yours (Now!)
Southern Copper: Warming Up or Cooling Off?
5 Dynamic Dividend Stocks

Sources: Form 4 Oracle, Capital IQ, and Motley Fool CAPS. *Open-market sales and purchases only.

What we're tracking here, and why
Insider buying data can be confusing. Here, I'm concentrating only on buying and selling conducted in the open market. With most of these transactions, insiders control the timing. Other times they're buying or selling under the purview of a 10b5-1 plan. Either way, personal holdings are being bought and sold.

Those personal holdings matter the most -- they're the shares executives hold for investment, rather than compensation. Employee stock options are different; they're compensatory in the purest sense. I've stripped out options-related buying and selling from the calculations you see above.

The Foolish view: bullish
Foolish colleague Chris Jones may have been touting the virtues of one of its peers, but in the process he made what I think is a startlingly strong bull case for Southern Copper.

"Taseko's high unit costs are also related to its relative small size. Southern Copper, for example, averaged only $0.27 in costs per pound in its recent quarter," Chris wrote earlier this month. For the last several years, Southern Copper has produced better than 50% gross margins on its business -- though that's suffered some over the past 12 months thanks to recent declines in copper prices.

The metal has since recovered, lifting the fortunes of Southern Copper and related businesses, such as India's Sterlite Industries (NYSE: SLT  ) . Yet executives are projecting even better days ahead. CEO Oscar Gonzalez Rocha recently told reporters at an industry conference that he believes copper prices could reach $4 a pound by 2011, up from an average of $2.66 per pound during the recent third quarter, Dow Jones reports.

This isn't just bluster. Rocha has bet real money on being right. In August, for example, he made the single largest purchase of any insider over the past year -- 102,000 shares at $28.96 apiece. And he's not alone. Southern Copper Chairman German Larrea Mota-Velasco was buying in bulk between December and February, when the stock was still trading for less than $15 a share.

But Rocha and Mota-Velasco's buys are peanuts compared to Grupo Mexico's commitment. The Mexican mining and railroad company has spent more than $96 million on Southern Copper shares over the past year. This isn't terribly surprising; the two companies have been financially conjoined for a decade.

Still, big bets are big bets, and moneyed interests have put more than $100 million into Southern Copper over the past year. I can't think of a more bullish sign.

Do you agree? Disagree? Log into Motley Fool CAPS today and tell us how you would rate Southern Copper.

And if you want me to take a Foolish peek at the insider action of your favorite stock, email me here or use the comments box below. I'll write this column as often as you, our readers, demand.

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Fool contributor Tim Beyers is a member of the market-beating Motley Fool Rule Breakers stock-picking team. He had stock and options positions in Apple at the time of publication. Check out his portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy has its eye on you.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 27, 2009, at 1:26 PM, waveonshore wrote:

    I also am bullish on copper and optimistic on gold. Interesting article except that the comments on Taseko and their economies of scale and production costs would be altered VERY significantly if their mine in British Columbia gets approval in January. The mine subject to approval is world class in both copper and gold and would be the largest in Canadian mining history. It alone will vault Taseko into the majors. Life expectancy of the new mine is 30 years! This will lower costs and alter their economies of scale.

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