Please ensure Javascript is enabled for purposes of website accessibility

Why Freeport-McMoRan Inc. Shares Rocketed 36% in April

By Reuben Gregg Brewer - May 9, 2016 at 9:47AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Freeport-McMoRan's still got an oil issue, but it's looking less and less onerous.

Image source: Freeport-McMoRan.

What: Freeport-McMoRan's (FCX 4.80%) stock went up by more than a third in April. That brings the company's year-to-date gain through the end of that month to over 100%. Look at the price advance from the middle of January, when commodity prices started to turn higher, however, and the gain is 230%.

So what: Freeport sells commodities, so the broad commodity rally that's taken shape since mid-January is the driving force behind the company's stock price move. Since copper and gold, two of the company's main products, basically kept moving higher through April, the stock did exactly as you might expect. The shares of most mining companies were up in April, too.

But there's a little difference at Freeport that's worth noting, and that's oil. Shortly before the oil market started to tank, Freeport made an expensive and debt-fueled foray into the oil business. That decision has looked like a loser since about mid-2014, when oil began a long decline. With a heavy debt load and oil assets that aren't as appealing as they once were, Freeport has been retrenching and is now looking to get out from under this investment.

To be sure, Freepot still has a huge debt issue since long-term debt made up nearly 85% of the capital structure at the end of the first quarter. And at the end of April, it announced that the first quarter was yet another stanza filled with red ink. But with oil prices off their lows for the year and copper and gold prices stronger, too, the company is gaining some much-needed breathing room -- though that doesn't mean it's out of the woods by any stretch of the imagination.

Now what: The point here is that investors looking at Freeport need to see the bigger story. Yes, commodity prices are helping lift the shares of this debt-heavy miner and oil producer. But that doesn't solve the problem Freeport is facing; it just softens the pain a little bit. In other words, Freeport McMoRan remains a company in turnaround mode. That will be true until it solves its debt woes in some way. For investors interested in that sort of thing, Freeport is worth a deep dive. For conservative types hoping to invest in one of the world's largest copper producers, you're better off waiting until the oil issue is resolved first.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Freeport-McMoRan Inc. Stock Quote
Freeport-McMoRan Inc.
$30.99 (4.80%) $1.42

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.