eyeQ: this copper stock could be a bargain
Experts at eyeQ have used AI and their own smart machine to analyse macro conditions and generate actionable trading signals. Latest analysis highlights a share near an interesting entry level.
8th August 2024 11:42
by Huw Roberts from eyeQ
"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
Freeport-McMoran
Trading signal: long-term strategic model
Model value:$42.98
Fair Value Gap: -8.76% discount to model value
Model relevance: 80%
Data correct as at 8 August 2024. Please click glossary for explanation of terms.
Opportunities in copper
Copper is back below $400 tonne and is close to the levels from 1 January. Put another way, we’ve effectively erased the entire 2024 rally in copper.
There are good reasons for this move. Recent headwinds for the metal include fears of a global recession, the ongoing slow-motion crash in the Chinese property market, plus early signs that the AI revolution (and copper’s use in data centres) is losing some momentum.
Also positioning was long and, as we discussed in yesterday’s FTSE 100 note, a big element of this downdraft has been a complacent skew among investors with everyone embracing the same ideas.
In the case of copper, that idea is that it’s integral to the electrification of the global economy, and the key point to remember is that the de-carbonisation theme hasn’t gone away.
Yes, there’s a backlash to environmental, social and governance (ESG) labelling and, yes, a Trump victory in November could see further progress stall. But the green transition is almost certainly going to be a big ongoing theme.
On the eyeQ smart machine, the copper miner Freeport-McMoRan Inc (NYSE:FCX) is noticeable on a couple of points:
- macro is critical. Our macro relevance score is high (80%) and has been for some time
- macro conditions have deteriorated rapidly - eyeQ model value is down almost 20% in the last month
- our model shows fears of a recession are the main culprit. But, if you squint closely, the orange line has bounced hard (around 7%) this week
- FCX hasn’t responded, so the stock now shows as nearly 9% cheap on our models.
That’s not quite cheap enough to trigger an official bullish signal, but we’re getting close. Given current market volatility, some may prefer to watch and wait from the sidelines. Fair enough. But for long-term investors and believers in the green theme, we could be getting close to an interesting entry level.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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