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Off the Charts: Freeport-McMoRan

Freeport-McMoran is a buy no matter which school of investing you follow, Cramer told viewers on Monday. Technical analysts and “fundamentalists” alike offer bullish reasons why investors should own this stock.

Remember, Cramer’s always been partial to the fundamentals. When he researches a specific company, it’s the underlying business and the macroeconomic environment that matter most. Technicians, on the other hand, focus more on a stock’s performance. They study charts, trying to divine which way a certain name will move next. Right now, some of Wall Street’s biggest money managers are chart-obsessed. So this trend has to be taken into account to better understand the forces at work behind the market.

What’s the Freeport graph look like? The stock is well below its 200-day moving average, technical jargon for how close FCX has stayed to its trajectory. Take a look at the charts on this page and you’ll see that FCX isn’t close to that trajectory at all. To a technical analyst, that means there’s a lot of upside potential.

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CNBC.com

The chart also shows that value buyers are accumulating larger and larger FCX positions. These investors grab stock at a good price because there’s little other interest than their own, then back off if the ask gets too high. This slow build, technicians say, is a good sign, especially after Freeport’s significant decline. The capricious shareholders are gone, replaced by people who intend to hold onto the stock for the long term.

Freeport buyers have become much more aggressive than the sellers, another bullish sign according to chartists. The lack of selling pressure on the stock means that any breakout in FCX could push the share price much higher. And with those value investors holding a good amount of the float, new buyers have to pay up for any available shares, which will also boost the ask. So you can see why technical analysts think FCX is a buy right here.

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CNBC.com

As for the fundamentals, Cramer said, the case is just as strong. Freeport seems to have left its recent difficulties, which included fears about liquidity and debt default, in the past by boosting its cash position. The company cut its dividend, lowered debt and announced a $750 million shelf offering. FCX also lowered its copper cash costs and is cutting production to further improve margins. So Freeport is in good position to weather this recession, and there’s a proven management team there to keep the business on track.

That’s why Cramer thinks Freeport is the best way to play the copper market right now, and the eventual return in global demand. Producers accounting for 2% of the world capacity have shuttered, and the commodity’s price is settling. Then there’s China. If a stimulus plan there ramps up that country again, expect FCX to benefit. Admittedly, 2009 won’t be the best year for Freeport’s earnings. But regardless, the stock is trading at just 8.6 times earnings, a discount to historical recession-times multiples.

So whether you follow the charts or the fundies, Cramer said, Freeport-McMoRan is a buy.









Cramer’s charitable trust owns Freeport-McMoRan.

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