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Why Freeport-McMoRan Inc. Stock Rallied 10.8% in February

Reuben Gregg Brewer, The Motley Fool

What happened

The shares of Freeport-McMoRan Inc. (NYSE: FCX) rose a solid 10.8% in February according to data provided by S&P Global Market Intelligence. Add that monthly advance to the January rally, and Freeport-McMoRan was up a hefty 25% or so in the first two months of 2019. There were a couple of reasons for this strong early-year showing.

So what

Freeport-McMoRan ended 2018 on a solid note. For starters, it was able to make material progress with the Indonesian government over ownership of the giant Grasberg copper and gold mine. That alleviated a big overhang on the stock and allowed it to start 2019 with a solid foundation since Grasberg accounts for around 30% of Freeport's copper reserves and virtually all of its gold reserves. It followed that up with a good earnings report in late January. Revenue advanced 13.5% year over year in 2018, and net income per share was up 24%.   

Copper pipes stacked atop each other

Image source: Getty Images

This is all good news that investors should be happy to see. However, the big driver at copper and gold miner Freeport-McMoRan is almost always commodity prices. And that's been a positive for most of 2019, with both copper and gold rallying throughout January and into February. And while gold started to cool off toward the end of February, copper, the more important metal for Freeport, remained smartly higher. Positive operating news, strong financial results, and rising commodity prices all helped elevate the stock last month. 

Now what

It is nice to see the underlying business at Freeport-McMoRan doing well operationally and earnings-wise. However, investors always have to keep the commodity link in mind. Yes, Wall Street has been pleased with the progress at Grasberg and the company's solid 2018 earnings, but the big push behind the stock price in 2019 has really been strong copper prices. If copper prices turn lower, Freeport's stock price will likely follow along for the ride. If you are looking at Freeport because of the recent rally, don't lose sight of the fact that often-volatile commodity prices play a big role in investor sentiment, here.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.