Is Freeport-McMoRan the Right Stock to Retire With?

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Now more than ever, a comfortable retirement depends on secure, stable investments. Unfortunately, the right stocks for retirement won't just fall into your lap. Let's figure out what makes a great retirement-oriented stock, then examine whether Freeport-McMoRan Copper & Gold (NYSE: FCX  ) has what we're looking for.

The right stocks for retirees
With decades to go before you need to tap your investments, you can take greater risks, weighing the chance of big losses against the potential for mind-blowing returns. But as retirement approaches, you no longer have the luxury of waiting out a downturn.

Sure, you still want good returns, but you also need to manage your risk and protect yourself against bear markets, which can maul your finances at the worst possible time. The right stocks combine both of these elements in a single investment.

When scrutinizing a stock, retirees should look for:

  • Size. Most retirees would rather not take a flyer on unproven businesses. Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security.
  • Consistency. While many investors look for fast-growing companies, conservative investors want to see steady, consistent gains in revenue, free cash flow, and other key metrics. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that suddenly torpedo a stock's share price.
  • Stock stability. Conservative retirement investors prefer investments that move less dramatically than typical stocks, and they particularly want to avoid big losses. These investments will give up some gains during bull markets, but they won't fall as far or as fast during bear markets. Beta measures volatility, but we also want a track record of solid performance as well.
  • Valuation. No one can afford to pay too much for a stock, even if its prospects are good. Using normalized earnings multiples helps smooth out one-time effects, giving you a longer-term context.
  • Dividends. Most of all, retirees look for stocks that can provide income through dividends. Retirees want healthy payouts now and consistent dividend growth over time -- as long as it doesn't jeopardize the company's financial health.

With those factors in mind, let's take a closer look at Freeport-McMoRan Copper & Gold.


What We Want to See


Pass or Fail?

Size Market cap > $10 billion $43.6 billion Pass
Consistency Revenue growth > 0% in at least four of five past years 4 years Pass
  Free cash flow growth > 0% in at least four of past five years 3 years Fail
Stock stability Beta < 0.9 1.77 Fail
  Worst loss in past five years no greater than 20% (75.5%) Fail
Valuation Normalized P/E < 18 6.43 Pass
Dividends Current yield > 2% 2.2% Pass
  5-year dividend growth > 10% 7.3% Fail
  Streak of dividend increases >= 10 years 2 years Fail
  Payout ratio < 75% 13.6% Pass
  Total score   5 out of 10

Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.

Freeport-McMoRan lands in the middle of our scale, but it isn't exactly the sort of stock that conservative investors gravitate to. With its business firmly within the volatile mining industry, Freeport-McMoRan has given shareholders a wild ride over the past several years.

Most investors have watched gold like a hawk in recent years as it soars ever higher. But there's a reason why gold plays second fiddle in Freeport's corporate name: copper is a better indicator of stronger economic activity. Like Teck Resources (NYSE: TCK  ) , which also mines metallurgical coal, Freeport gives investors core exposure to economically important copper production along with some other mining products as well.

Increasingly, though, geopolitical pressure will play a role in Freeport's prospects. In Peru, for example, newly elected President Ollanta Humala may go beyond proposals to tax miners to do something that would have a more disruptive effect on miners there. The government halted Southern Copper's (NYSE: SCCO  ) Tia Maria mine there, and both Freeport and BHP Billiton (NYSE: BHP  ) have significant exposure in the Latin American country.

The bigger concern for retirees and other conservative investors is what would happen if commodities plummet. With concerns that China may be overheating, miners like Rio Tinto (NYSE: RIO  ) , Vale (NYSE: VALE  ) , and Freeport that have fueled its growth could get left out in the cold. That's always a risk with miners, but if you can afford to take that risk, Freeport could be a lucrative way to benefit from this continuing global trend.

Keep searching
Finding exactly the right stock to retire with is a tough task, but it's not impossible. Searching for the best candidates will help improve your investing skills, and teach you how to separate the right stocks from the risky ones.

Add Freeport-McMoRan Copper & Gold to My Watchlist, which will aggregate our Foolish analysis on it and all your other stocks.

If you want to retire rich, you need to be confident that you've got the basics of your investment strategy down pat. See if you're on track by following the 13 Steps to Investing Foolishly.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. You can follow him on Twitter here. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

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5/25/2016 4:02 PM
FCX $11.65 Up +0.54 +4.86%
Freeport-McMoRan C… CAPS Rating: ***
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