FCX - would Phil Fisher buy?

I like FCX in that the company has a huge margin of safety while still having tremendous upside on anything but the worst scenarios of copper under $1.00.  FCX is the lowest cost producer and their break even cost after credits for byproducts is $1.00.  If copper pricing turns out to be flat to slightly down, FCX trades at 6-8x free cash flow.  Granted this multiple could be looking at peak earnings but over the full cycle FCX is still trading below 10x.  I also believe that FCX having negative earnings in the cycle is unlikely going forward as I cannot see copper trading back to $1.00.  Since the business will have less cyclicality (no negative earnings), the multiple prescribed can be higher at say 12x bringing a strong return (perhaps a double from these levels).   

In addition, FCX has projects available to increase growth should copper prices appear sustainable above $3 on a longer term basis.  FCX management believes this to be the case as they are spending CapEx above maintenance CapEx requirements.  In the last quarter, FCX guided for next year CapEx spending 2.6B with only 1.2B being maintenance capital.  

If copper prices are able to trade higher, lets say $4 FCX is trading closer to 4-6x free cash flow and trading at perhaps 8x the full cycle.  In that case I can see FCX an even larger double.  

While I have not gone through Phil Fisher's 15 point checklist point by point, FCX seems to be a stock that Fisher might purchase.  

Long FCX

FCX 3Q results, continues to impress on FCF generation

3Q Presentation
http://www.fcx.com/ir/2011present/FCX_3Q11CC_OCT11.pdf

FCX price target 72.8, using a 12.5 FCF multiple on 5.603 FCF and Net Cash of 1.6B.  If there was 0% sales growth, using a multiple of 8 would still come up with a valuation of 47. 

Cash of 5.1B and Debt of 3.5B or Net Cash of 1.6B.  This is after paying out 1.2B in debt and spending 1.7B in CapEx through 3Q.

Cash costs for copper (after credits for byproducts) was $0.80 for the quarter.  The low cash cost was due to higher credits (byproduct pricing was strong).  For the year, cash costs are expected to be $0.95

On the conference call mgmt talked about a disconnect between the financial copper market and the physical copper market.  The physical market is still extremely tight.

CapEx for 2011 is guided at 2.6B of which 1.4B is expansion, 1.2B is maintenance.  Management did guide to an additional 1B in CapEx for next year as additional expansion projects are approved. 

My only disappointment is that there was not any buyback activity, especially when the stock got crushed this quarter.  Management is currently focused on expansion projects and making sure they are well-funded.  There is currently a 5B authorization outstanding and the board is looking (as always) buybacks, supplemental dividends, and/or increasing the regular dividend.  Management did buyback 1.2B of stock this year at (unfortunately) higher prices.