In late 2011, shares of mining giant Freeport-McMoRan (FCX) lost nearly half their value in just over two months…
I couldn’t believe it.
I grabbed the opportunity. I recommended True Wealth readers buy Freeport a couple weeks after it bottomed.
My timing was good… The stock jumped 50%-plus in less than four months.
Whenever Masters of the Universe are trading for “stupid cheap” prices, you have to seriously consider buying them… And today, three of them are “stupid cheap” again…
I described what a “Master of the Universe” looks like in the November 2011 issue of my True Wealth newsletter…
Whoever controls the Grasberg copper mine is a true “Master of the Universe.”
The Grasberg mine in Indonesia contains the world’s largest reserves of copper… AND gold. The value of an irreplaceable asset like this – in a world with an insatiable long-term demand for copper and gold – is priceless.
Yet the company that owns Grasberg is so large and powerful, it actually mines more copper per year in North America than it does at Grasberg… and it mines more copper in South America than it does in North America.
Now THAT is a Master of the Universe. That’s Freeport.
[ad#Google Adsense 336×280-IA]Freeport is big. But Rio Tinto (RIO) and Vale (VALE) are even bigger Masters…
They’re both more than twice Freeport’s size.
As I wrote in that same True Wealth issue:
“These two companies are Masters of the Universe in iron ore – the raw material in steelmaking.
China needs iron ore… All those cars, refrigerators, and skyscrapers aren’t going to be built with bamboo!”
Today, these three Masters are “stupid cheap” again… with high dividend yields and low price-to-earnings (P/E) ratios:
Why are they cheap?
There are plenty of reasons… Commodity prices have fallen – a lot – because China isn’t growing as fast as expected. The companies splurged in the good times and are now paying for it in the bad times. They’re taking multibillion-dollar write-downs. There’s plenty of supply. In short, everyone hates commodity companies now.
The thing is, Freeport still controls Grasberg, and Vale is still a low-cost producer of iron ore.
Vale, in particular, is down a lot… Brazil’s stock market has lost a quarter of its value (in U.S. dollar terms) in the last two months. Vale – a Brazilian company – was not immune… It lost a quarter of its value in two months as well.
I can’t (in good conscience) buy these Masters of the Universe yet. The reason is, I don’t know where the bottom is… and I’ve found that predicting the bottom is much harder than simply waiting on a new uptrend.
I am interested in buying these stocks soon… They are dirt-cheap. And they are hated now.
Importantly, these three companies are Masters of the Universe… They control incredible assets, and they will be around for decades.
I will buy them again someday. But I am not buying… yet. I’m waiting for the uptrend.