Copper and gold mining company Freeport McMoRan is undervalued, and despite its controversial acquisition of oil and gas company Plains Exploration and Production, the company is poised for major long-term growth, according to one portfolio manager.
"That [acquisition] diversifies their business, but disappointed a lot of purists that enjoyed Freeport as more of a pure copper play and felt it's going to devalue the company over the long term." said Michael Cuggino, president and portfolio manager of the Permanent Portfolio Family of Funds. But given oil and gas prices, Cuggino expects the Plains Exploration acquisition to pay off almost immediately, he said.
Cuggino, who currently manages about $12 billion in assets, notes that, based on Freeport's price-to-earnings ratio of about 10, Freeport trades at about a 50 to 60 percent discount to the overall stock market. And as a group, natural resource mining stocks have underperformed the recent equity rally, Cuggino told "Big Data Download."
"Even at reduced metals prices ... there's a substantial operating cash that's produced, even in this environment with declining prices, so we think there's tremendous growth potential there in the long term because we do think prices will increase and that cash component of operating revenue will increase as well," Cuggino said.
-- Cuggino's Permanent Portfolio Family of Funds owns shares of Freeport McMoRan.
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