5 Best Copper Trades - Investment Ideas

Copper is known as the "smart metal." Investors affectionately call it "Doctor Copper" out of respect for its ability to forecast global economic conditions.

Copper has many industrial uses but is also a big component in residential and commercial construction. The theory goes that as the global economy grows, demand for copper will rise as more buildings, malls, and houses are built.

With more demand, copper prices will rise. So a rising copper price is an indicator of strong global growth.

China is expected to build 20,000 to 50,000 high rises over the next 20 years. Currently, China is building 3 of the tallest buildings in the world.

Additionally, there is strong growth in Brazil, which has a shortage of middle class housing, and Australia, with its nearly full employment rate, and copper is suddenly near record highs.

Dr. Copper is signaling that the global recovery isn't just happening, but that it's going to be a strong recovery.

How To Cash In On Record Copper Prices

The question for investors is, how do you cash in? It's not quite as easy to invest in copper as it is some other metals, like gold and silver.

Currently, there is no ETF which trades directly in the metal as there are with gold and silver. Although, that may soon change as rumors abound that several copper ETFs, which will hold the physical metal, will be trading soon.

But for right now, that's not an option.

That leaves the copper miners. You can buy miners that specialize mainly in copper or you can buy the more diversified miners which mine in copper but also a host of other commodities including oil and coal.

As an added bonus, many of these companies are paying nice dividends so not only might you get further upside in earnings if copper prices continue to rise but the dividends aren't too shabby either.

5 Ways To Invest in Copper Right Now

1. Freeport McMoran (FCX)
2. Southern Copper Corp. (SCCO)
3. Teck Resources (TCK)
4. BHP Billiton (BHP)
5. Global X Copper Miners ETF (COPX)

1. Freeport McMoran (FCX)

Freeport McMoran mines copper, gold and molybendum. The company operates one of the world's largest copper and gold mines in terms of recoverable reserves. With copper and gold at record prices, the company has strong cash flow. It is using it to reward shareholders.

In October, Freeport raised its dividend from $1.20 to $2.00 per share. On Dec 9, it announced a special $1.00 per share dividend payable on Dec 30 to all shareholders of record as of Dec 20. It is also splitting its stock 2 for 1 as of Feb 1, for shareholders of record as of Jan 15.

Analysts expect Freeport to grow its earnings by 43% in 2010 and another 17% in 2011. It trades at just 12.8x forward estimates. It is a Zacks #3 Rank (hold) stock.

2. Southern Copper Corp. (SCCO)

Southern Copper Corp. mines copper and molybendum in Peru, Mexico and Chile. It pays a nice dividend, currently yielding 3.8% but the company's dividend isn't fixed every quarter, as Freeport's is, so it will fluctuate based on earnings that quarter.

Earnings are expected to grow 74% in 2010 and another 66% in 2011. Shares are more expensive than Freeport, trading at 24x forward estimates. Southern Copper Corp. is also a Zacks #3 Rank (hold) stock.

3. Teck Resources (TCK)

Teck Resources is a Canada-based global miner with 13 mines in Canada, the U.S., Peru and Chile. It's a big copper producer but also mines molybendum, zinc and coal.

Analysts expect strong earnings growth of 92% in 2010 and another 68% in 2011. It trades with a forward P/E of 19.7. It also pays a dividend, but it is yielding just 1.1%. Teck Resources is a Zacks #3 Rank (hold).

4. BHP Billiton (BHP)

BHP Billiton is an Australian based mining giant with interests in copper, gold, silver, zinc, oil and natural gas, potash and diamonds. BHP is like a one-stop-shopping commodities play.

Earnings are expected to grow 48% in fiscal 2011 and 12.8% in fiscal 2012. Shareholders also get a dividend yielding 2%. BHP is trading at just 13.3x forward estimates. It is a Zacks #2 Rank (buy) stock.

5. The Global X Copper Miner ETF (COPX)

The Copper ETF gives you exposure to some of the big copper miners that trade only on the Toronto or London exchanges including Ivanhoe and HudBay Minerals. It only started trading on April 19 of this year so it is the newest copper play.

It has 30 holdings with Canadian companies representing 42% of the ETF. You'll also own Freeport McMoran and Southern Copper Corp. if you own this ETF. Both are among the top holdings.

[In full disclosure, the author of this article owns shares in the following securities: FCX, SCCO, BHP and COPX.]

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

 
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