I’ve been quite bullish on Freeport-McMoRan Copper & Gold Inc. (FCX) for some time now.  In fact, the stock is up over 119% since I first recommended it to Investor’s Daily Edge readers on February 12th of this year.

And I’m still recommending the company as a strong buy.

Freeport-McMoRan is one of the world’s biggest copper miners, with 12 producing mines in Indonesia, North America, and South America, along with exploration projects in Africa.  As of December 31, 2008, consolidated recoverable proven and probable reserves totaled 102.0 billion pounds of copper.  As copper prices rise, the value of the ore they have in the ground increases, resulting in a higher stock price.

Freeport-McMoRan is well positioned to capitalize on rising demand for copper.  The company’s copper production totaled 4.0 billion pounds last year, while gold production totaled 1.3 million ounces.

I expect a full recovery in the demand for copper and much less supply.  Copper is at $2.80 per pound and it could easily go over $3 per pound in a couple of months.  Production of copper can’t keep up with demand, as production at existing mines is dropping and a smaller number new mines start production.  Falling scrap supplies are also leading to lower copper inventories.

Copper is one of the best conductors of electricity.  It doesn’t corrode easily and it’s bendable and strong.  Copper is used in every industry and is absolutely necessary to sustain our society.  It’s widely used in construction, coinage, electronics and automobiles, and the price is closely tied to economic activity.  Economic activity is showing signs of a recovery and copper prices will benefit.

China, the world’s biggest metals user, should also help revive copper prices with a new wave of government stimulus spending, leading to steady construction and infrastructure activity.  Copper demand is already picking up in China during its peak construction season.  It also appears that China desires to triple its government copper reserves.

Other countries are also increasing spending on infrastructure projects like roads and bridges as well, which will boost demand for the copper used in wires and pipes.

Worldwide government stimulus spending programs spur economic growth and encourage higher copper consumption.  Copper will benefit from the “reflation trade”, which is playing out due to central governments attempting to stimulate the economy by increasing the money supply.  This “reflation” can cause inflation and benefit copper prices, and therefore FCX.

Freeport-McMoRan (FCX) stock looks good from a technical perspective as well.  The 50-day moving average is rising (a bullish indicator).  Moving Average Convergence/Divergence (MACD) and relative strength is bullish.  And the stock recently broke a double-top chart formation which is very positive, see the chart below:

I recommend you own some Freeport-McMoRan stock (FCX) as a long-term core holding for your stock portfolio.  Also, I have my eye on a new round of call options on Freeport-McMoRan that have the potential to produce gains of 200% or more as the stock moves higher.

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Best Wishes,

Ted Peroulakis