Goldman Sachs Says Buy Freeport-McMoRan (FCX) and Alcoa (AA) on Weakness
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Price: $76.66 +7.64%
Rating Summary:
28 Buy, 7 Hold, 2 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
28 Buy, 7 Hold, 2 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Goldman Sachs reiterated their Buy ratings on Freeport-McMoRan Copper & Gold (NYSE: FCX) and Alcoa (NYSE: AA) following the recent sharp pull back in the shares on global growth and the sovereign issues in Europe.
The firm expects demand for metal to remain fairly healthy driven by emerging markets. Also, supply demand fundamentals for metals look positive, particularly for copper.
Specifically on copper, Goldman said they remain very constructive as the supply side remains challenged. Goldman estimates that supply disruptions will amount to at least 8% of total production loss this year, versus the 4%-5% drop they had expected. Recent data suggests Chinese warehouses have significantly depleted their copper stocks. This opens a positive arbitrage between the China and LME prices could mean increase in copper imports into China, according to the firm. Freeport-McMoRan is the best way to play this, Goldman stated.
Although they are more optimistic on copper, they do not see further downside in aluminum price which are close to marginal cost. Specific catalyst make them "very constructive" on Alcoa. These include: gradual de-linking of alumina prices from the LME based aluminum; its highly profitable downstream business where both top line and bottom line are expected to rise as the aerospace cycle accelerates; the low cost Ma'aden facility should be a strong contributor to the bottom line.
Goldman also made a number of moves in the steel sector. The firm upgraded Reliance Steel and Aluminum (NYSE: RS) to Buy and Century Aluminum (Nasdaq: CENX) to Neutral, while downgrading Worthington Industries (NYSE: WOR) to Sell and Steel Dynamics (Nasdaq: STLD) to Neutral. Goldman prefers service center stocks over mill stocks in the current steel environment.
The firm expects demand for metal to remain fairly healthy driven by emerging markets. Also, supply demand fundamentals for metals look positive, particularly for copper.
Specifically on copper, Goldman said they remain very constructive as the supply side remains challenged. Goldman estimates that supply disruptions will amount to at least 8% of total production loss this year, versus the 4%-5% drop they had expected. Recent data suggests Chinese warehouses have significantly depleted their copper stocks. This opens a positive arbitrage between the China and LME prices could mean increase in copper imports into China, according to the firm. Freeport-McMoRan is the best way to play this, Goldman stated.
Although they are more optimistic on copper, they do not see further downside in aluminum price which are close to marginal cost. Specific catalyst make them "very constructive" on Alcoa. These include: gradual de-linking of alumina prices from the LME based aluminum; its highly profitable downstream business where both top line and bottom line are expected to rise as the aerospace cycle accelerates; the low cost Ma'aden facility should be a strong contributor to the bottom line.
Goldman also made a number of moves in the steel sector. The firm upgraded Reliance Steel and Aluminum (NYSE: RS) to Buy and Century Aluminum (Nasdaq: CENX) to Neutral, while downgrading Worthington Industries (NYSE: WOR) to Sell and Steel Dynamics (Nasdaq: STLD) to Neutral. Goldman prefers service center stocks over mill stocks in the current steel environment.
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