This is a special look at two of the picks in Stephen “Sarge” Guilfoyle’s Reopening Portfolio appearing today on Real Money. See the full list of his picks and watch Sarge and his fellow Real Money columnists Chris Versace and Ed Ponsi debate their choices on May 26 in a special Real Money webinar, Real Talk. Sign up now!
Simon Property Group
Let me say upfront that I am long this name. I did not always expect that to be the case, as prior to the pandemic I would not have invested in "the mall." For the first quarter, Simon Property Group (SPG) - Get Report reported FFO (funds from operations) of $2.41, decisively beating expectations that were down around $2.25. But revenue contracted 8.1% year-over-year, landing at $1.24 billion.
The mall is dead, right? Physical retail is done for. Right? Maybe. Maybe not. Maybe that kind of retailing was doomed until you couldn't do it. Until you couldn’t shop in person. Until so many of us ended up staying at home all of the time. Occupancy at U.S. malls and premium outlets came in at 90.8% on March 31, 2021, down from 91.3% as of December 31, 2020. I thought the decline would be worse after what so many states went through this past winter. Just what are tenants paying for space? That has to be down, right? Um, not really. Base minimum rent per square foot actually increased 0.6% year-over-year to $56.07 on March 31, 2021. Incredible.
Simon Property Group now estimates that net income (earnings) will find its way into a range spanning $4.47 to $4.57 per diluted share based on FFO of $9.70 to $9.80 per diluted share for the full year. This is up from prior guidance of $9.50 to $9.75 and Wall Street's consensus of $9.66.
On a technical basis, readers will see the basing pattern extending from mid-February through mid-April, and the stock's attempt to break out of that upper bound of $120 as a pivot. Key right now, I think, is the fact that our new pivot is at least making a stand as potential support. My target price is $144, while my panic price, which is the level where I will admit I have made a mistake, is $110.
I don't really know how anyone bets against copper this year, or more broadly, industrial metals at all. Freeport-McMoRan (FCX) - Get Report is another name that I am long. Just a heads up. Am I talking about my book? Of course. At least you know I really am thinking what I write.
Copper has been making new record high prices at the London Metals Exchange regularly since Friday, May 7. Now trading at roughly $10,465 per metric ton, keep in mind that back in mid-April, Goldman Sachs projected that copper would hit $15,000 per metric ton by the year 2025.
On top of that, you see new homes going up everywhere. And electric vehicles require about 150 more pounds of copper to build than do traditional passenger vehicles. I don't see demand for EVs moving backwards anytime soon. Have we even figured out how large President Biden's planned $2.3-trillion infrastructure plan will be once negotiations end? There will be an infrastructure spending bill of some kind; we just don’t know how big it will be given the contentious state of politics in our legislature.
For the current quarter, Freeport sees copper sales volume of 975 million pounds, up sequentially from 825 million pounds for the fourth quarter of 2020. The firm also sees gold sales of 330,000 ounces. For the full year, the firm now expects to sell 3.85 billion pounds of copper, up from prior guidance of 3.8 billion pounds, while leaving alone guidance of $2.3 billion in capital spending. Most of Wall Street still has a "buy" rating on this name, even if the stock had outrun many of their standing target prices in early May.
Looking at its technicals, Freeport comes out of a double bottom close to the top of the chart. This places the pivot at the $38 level. I have placed my target price for this name up at $48 which would be a 25% premium to pivot, which is a little bit of a shift for me. I usually start out shooting for a 20% pop on a breakout, but given this is a name that I feel that I have been prematurely shaken out of a few times in the past, I chose to tack another 5% on to my target price. My panic price is $35.
Stephen “Sarge” Guilfoyle writes on stocks and the markets each trading day for Real Money, TheStreet’s premium site, including his popular Market Recon column every morning. Guilfoyle is also co-portfolio manager of TheStreet’s Stocks Under $10.
Disclosure: At the time of publication of this article, Guilfoyle was long SPG and FCX.