All good stuff, so why is the stock getting punished in Thursday's trade? Today, China announced it is increasing its interest rate for one-year loans by 0.27%, to 5.58%, in an effort to slow growth slightly. This is its first rate hike in nine years. Phelps Dodge has five offices in Asia and sells a lot of copper and aluminum in the region. Part of the run-up in the price of Phelps Dodge has been due to perceived and real demand coming from Asia for all industrial metals.
Swift, sharp reactions like the one we are seeing today are not new to Phelps Dodge's stock.
Over the last 30 years, the stock has had some sickeningly harsh drops in price. Investors who own the stock should keep this in mind. Since 1971, there have been 26 different times that the stock has had a 25% or greater price correction. As you might imagine, with all of that famine has been plenty of feast. Depending on your preference, the stock either has tripled over the last two years or is up 50% in the last six months. Going simply by the chart (which isn't generally what a Fool would do), now would not seem like a safe time to buy.
Well, what about all that demand from China? The stock could go much higher, but at this point in the cycle you are taking on too much risk by investing, at least in my mind. Historically, the best time to buy copper or copper stocks has been at the beginning of an economic recovery; that's why Phelps Dodge had such a great 2003. Copper demand increases in anticipation of increased production, an early cycle event.
Successful investing requires knowing the wrong moves as well as the right ones. And if you ask me, late in a recovery is the wrong time to buy copper.
Fool contributor Roger Nusbaum is an investment manager and wildland firefighter in Prescott, Ariz. At press time, neither he nor his clients owned any of the stocks mentioned . Most importantly, he is a lifelong Red Sox fan who is finally having his day.