Copper Stock Set to Shine After Morgan Stanley Upgrade

Morgan Stanley did trim FCX's price target, though

by Patrick Martin

Published on Feb 13, 2019 at 9:09 AM

The shares of Freeport-McMoRan Inc (NYSE:FCX) are up 5% in electronic trading, after Morgan Stanley upgraded the equity to "overweight" from "equal weight," while trimming its price target to $14 from $16. The analyst in coverage thinks FCX will lead its peers in pricing leverage and benefit from improving China demand, and believes the mining name "will emerge as the go-to large-cap stock for exposure to a copper price rally."

Even though it's a price-target cut, the $14 level still represents territory FCX hasn't traded near since early October. The shares bottomed at $9.60 on Dec. 26, but already boast an 11.4% gain in 2019. Should today's positive price action pan out, Freeport-McMoRan stock could slice through resistance at its 100-day moving average. 

The security could benefit from a continued shift in sentiment. Of the 11 brokerages in coverage of FCX, eight rated it a "hold" or "strong sell" at last night's close. And short sellers continue to pile on in droves, with short interest up 31% in the most recent reporting period to 35.77 million shares, a nearly 12-month high. 

In the options pits, the appetite for bearish bets has ramped up, too. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows that FCX's 10-day put/call volume ratio of 0.46 ranks in the 94th percentile of its annual range. This indicates that while bought calls have exceeded puts on an absolute basis in the past two weeks,the rate of put buying relative to call buying has been quicker than usual.

Now might be an attractive time to speculate on the security with options. FCX stock's Schaeffer's Volatility Index (SVI) of 40% stands higher than just 20% of other such readings from the past year, implying that near-term options are pricing in relatively low volatility expectations at the moment.

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