Four Copper Stocks Poised to Gain

Copper has been the clear winner amongst all industrial commodities over the past year.

Since January 2009, copper prices appreciated 132% in comparison to gold and crude oil, each of which registered gains of only 28%. The flagship CCI Commodity Index, which tracks a broad range of commodities including energy, metals and agricultural produce, appreciated only 30%.

Riding this wave, stocks of copper producers Freeport-McMoran Copper & Gold(FCX), gained 189% Teck Resources(TCK) surged 568% , Rio Tinto (RTP) jumped 115%, and Southern Copper (PCU) advanced 64%, during this period.

Copper is currently trading at $7,405 a ton for spot delivery on the London Metal Exchange, having corrected 3% since the peak of $7,630 at the beginning of this year. The outlook is somewhat mixed with some analysts forecasting a further appreciation in prices and others predicting consolidation at current levels.

Nevertheless, from a producer's perspective, the average prices of copper will still remain about 35% higher than those witnessed during 2009, according to analysts polled by Bloomberg. This implies that earnings of copper producers will continue to register significant double-digit growth rates at least for the first couple of quarters this year.

Freeport-McMoran is most highly leveraged to the trend in copper prices. The company plans to increase its exploration spending to $100 million this year. Its shares are trading at relatively inexpensive 13.5-times forward earnings.

Copper producers believe that global copper mining will not be able to keep pace even if demand grows at a moderate pace. With average copper prices during 2010 set to be much higher than 2009, producers are clearly optimistic. Producers have committed significant investments towards expanding capacity in the near-term and expect strong production growth this year.