Everything Has a Price

The program traders, S&P 500 futures sellers, quant hedge funds and momentum funds saw no value in Freeport-McMoRan (FCX - commentary - Cramer's Take) at $75. Was that right? Consider the case of Xstrata's $10 billion hostile offer for Lonmin.

In the excellent coverage of this bid by the Financial Times, Mick Davis, the chief executive of Xstrata, makes it very clear that he acted because Lonmin's share price had fallen precipitously, down 34%, because of a correction in platinum, Lonmin's chief mineral. Davis wants it because platinum is a key element in catalytic converters for cars that are being sold in China and India, and because Lonmin's stock is factoring in an endless decline in platinum, so why not give shareholders a 42% premium? After all, it is all the way back to where it was in 2006 before the real boom began.

Which brings me to Freeport. This stock, like Lonmin, has nosedived, down 40% in a couple of months. It too has traded, if not at, then certainly close to its 2006 price despite a radical revaluation upward in copper because of supply problems. We are running out of cheap copper.

If BHP (BHP - commentary - Cramer's Take) or Rio Tinto (RTP - commentary - Cramer's Take) or Vale (RIO - commentary - Cramer's Take) were to be as opportunistic as Xstrata, it would be a natural to take advantage of the 40% decline with a 40% premium bid (still below where it traded). That's why this stock quickly ramped 10 points.

Why all of this is important is when you get the kinds of declines we have had in names like this because of programs that say it must be sold at any price, think of Lonmin. There are real buyers watching these declines, and they are ready to pounce.

No, I don't expect FCX to head back to its high anytime soon. I do, however, see a bottom, if the stock trades back to the $60s, where it hung out before the big Phelps Dodge deal. (Full disclosure: I bought this stock all the way down and have had to scale out of some on the way up to keep it from overwhelming my portfolio.)

At the time of publication, Cramer was long FCX.

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