This company has been absolutely crushed over the past five years, and it may indeed be a compelling value at current levels. Freeport-McMoRan Inc. (NYSE: FCX) is a premier U.S.-based natural resources company with an industry-leading global portfolio of mineral assets, significant oil and gas resources and a growing production profile. It is also the world’s largest publicly traded copper producer.
The company’s portfolio of assets includes the Grasberg minerals district in Indonesia, one of the world’s largest copper and gold deposits. It has significant mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America. Other assets include the Tenke Fungurume minerals district in the DRC, as well as significant U.S. oil and natural gas assets, principally in the Deepwater Gulf of Mexico and in California.
The company recently postponed an oil and gas spin off, and the market responded very positively. The company also has continued to shed assets and build up a solid cash position.
The Jefferies team notes that there’s been considerable market chatter over a Rio Tinto possible acquisition of the company. While there are situations that would need to be resolved to complete such a transaction, they think it could be an outstanding fit. They note that such a deal would lessen Rio Tinto’s exposure to iron ore, and increase the company’s exposure to copper.
The $15 Jefferies price target compares with the consensus estimate of $10.91 and the most recent closing share price of $10.66.
Simon Property Group
This is one of the largest real estate investment trusts (REITs) and it boasts an outstanding market position. Simon Property Group Inc. (NYSE: SPG) invests in the real estate markets across the globe. It engages in investment, ownership, management and development of properties, primarily regional malls, premium outlets, mills and community/lifestyle centers. Through its subsidiary partnerships, it owns or has an interest in about 230 properties in the United States and Asia. The company also has a 28.9% interest in Klepierre, a European REIT with over 260 shopping centers in 13 countries.
The company posted very solid first-quarter numbers and raised its outlook going forward. The first-quarter funds from operations exceeded the consensus earnings per share estimate. Growth in operating income and new developments and expansions aided the results. Total revenue in the quarter increased 9.9% year over year, trouncing the consensus estimate.
While many fear the move away from brick-and-mortar stores, the Jefferies team notes that A level malls, many of which Simon’s owns, are exhibiting no signs of a slowdown in demand for high-quality mall space. With a lack of new supply coming, they see things shaping up nicely for this sector leader.
Investors receive a 3.22% distribution. The Jefferies price target is $250. The consensus target is $228.95, and shares closed Thursday at $197.40.
This long-time innovator in the storage industry is a leader in the total addressable hard disk drive (HDD) market. Western Digital Corp. (NASDAQ: WDC) is an industry-leading developer and manufacturer of storage solutions that help to create, manage, experience and preserve digital content.
Western Digital is responding to changing market needs by providing a full portfolio of compelling, high-quality storage products with effective technology deployment, high efficiency, flexibility and speed. Its products are marketed under the HGST and WD brands to original equipment manufacturers, distributors, resellers, cloud infrastructure providers and consumers.
The most compelling news is that the company announced a stunning $19 billion purchase of SanDisk last year. This could be a strong addition to the Western Digital current offerings. The company could significantly benefit from SanDisk’s technology and portfolio leadership in the NAND flash semiconductor and enterprise flash systems market. The value of the deal for SanDisk is now $78.50 per share, down from $86.50 when it was originally struck.
The company missed earnings estimates and guidance was much lower than expected when it reported most recently, as weakness in the HDD arena persists. However, Jefferies sees the SanDisk purchase as potentially an accretive one, and operating savings from the integration of the two HDD businesses are not reflected in the current stock price. The firm also thinks that trading at eight times the current 2017 earnings per shares estimates, the stock is cheap.
Western Digital shareholders receive a 4.13% dividend, which could possibly be cut to save free cash flow. The Jefferies price target is set at just $50, which could increase, while the consensus target is $58.82. The stock closed Thursday at $48.38.
Clearly the value for investors with these stocks lies in the fact that most are trading way below former highs, and they have had a large amount of speculation taken out of the pricing. While more appropriate for growth accounts with a little more risk tolerance, they all offer solid entry points.