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Why Shares of Freeport-McMoRan Plummeted 46% in 2018

By Scott Levine – Updated Apr 18, 2019 at 8:41PM

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The price of copper dropped 20% through the year. But that wasn't the only factor that contributed to the stock's decline.

Check out the latest Freeport-McMoRan earnings call transcript.

What happened

While shares of Freeport-McMoRan (FCX 0.58%) soared 44% in 2017, last year held a much different story, as the stock fell 46%, according to data from S&P Global Market Intelligence. The sharp drop in the price of copper played a factor, but a pessimistic tone from the Street and management's less-than-assuring words regarding the state of the copper market also helped send shares lower.

So what 

One motivating factor for investors last year was the bearish sentiment that echoed on Wall Street, according to In September, for example, Clarksons Platou downgraded the stock to "neutral" from "buy" and chopped its price target from $21 to $15. Shortly thereafter, in late October, an analyst at BMO Capital, David Gagliano, reduced his price target from $16 to $13.

Sitting below a red line trending downward, a woman sits with her head in her hands.

Image source: Getty Images.

An in November, the bears continued to roar, as an analyst at RBC Capital, Stephen Walker, downgraded Freeport McMoRan to "underperform" from "sector perform" and reduced his price target from $16 to $15.

It wasn't only analysts who failed to inspire confidence last year; management also played a significant role. Speaking on the company's third-quarter earnings call, Richard C. Adkerson, Freeport-McMoRan's president and CEO, called the copper market a "paradox." Adkerson contended that "[f]undamental drivers remain very positive" for the copper industry, but he seemed perplexed when he said, "When you look at the fundamentals, and you look at this drop in global copper exchange stocks, and to see the copper price in that slide parallel each other is very unusual in our industry." To state the obvious, investors detest uncertainty. So it comes as no surprise that investors found management's comments less than inspiring. 

Now what

Experienced investors know that wild swings in the price of metals happen from time to time; consequently, dips in the price of mining stocks are also to be expected. Regarding the rumblings from the bears on the Street, investors should always exercise caution and not put too much stock in analysts' actions, since they often maintain time horizons that are shorter than the multiyear holding periods we espouse.

From here, investors would be better served to keep a close eye on how the company fares in its newly renegotiated deal with Indonesia regarding the Grasberg mine -- one of the company's core assets.

Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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