Disclosure: Long AA, sold my FCX position for an excellent profit 71– 22 = 49 per share profit.
So why do I think Guy got it wrong on his FCX call, and AA short?
Guy’s point is earning power and fundamentals. Ok Guy let’s look at the two companies shall we.
AA average EPS 1.70, with a share price hovering around 14 and change means a PE of 8.38. Their revenue growth is about 11 to 12 percent. Thus AA is underpriced for their potential growth.
FCX on the other hand has an average earnings of –1.50. You see FCX in 2008 pumped a huge mega loss. Let’s include the extra ordinary item and their earnings are on average 3.577, which at the current share price puts FCX at 20.9. FCX has had moments of incredible growth, but now they have AA growth.
Let’s compare dividend yield? AA is 3.77, and FCX is 0.67.
How about market capitalization? AA is 14 billion, and FCX is 31 billion.
What about debt and price to book? AA is 1.09, and FCX is 8.65 (lower is better),
How about price to sales? AA is 0.66, and FCX is 2.37 (lower is better).
So which one is a better long term investment? Well it depends on the long term consensus estimates, where FCX has slight growth, and AA not really.
Why would Guy be bullish on FCX and not AA? Simple FCX expanded has taken on debt and has to figure out how to make money. FCX on paper has more earnings potential. But frankly on paper for me is hope, not real life action.
Putting all things together Guy got it wrong with FCX. FCX is has a richer valuation and higher share price. Of course the share price might go higher, but at this point FCX is a momentum play, not a value play.