Freeport-McMoRan Inc. (NYSE:FCX) shares are down more than -11.50% this year and recently increased 0.84% or $0.14 to settle at $16.78. Energy Transfer Partners, L.P. (NYSE:ETP), on the other hand, is up 6.14% year to date as of 05/17/2018. It currently trades at $19.02 and has returned 2.59% during the past week.
Freeport-McMoRan Inc. (NYSE:FCX) and Energy Transfer Partners, L.P. (NYSE:ETP) are the two most active stocks in the Copper industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.Growth
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect FCX to grow earnings at a 23.61% annual rate over the next 5 years.Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 19.31% for Energy Transfer Partners, L.P. (ETP). FCX’s ROI is 11.30% while ETP has a ROI of 3.30%. The interpretation is that FCX’s business generates a higher return on investment than ETP’s.Cash Flow
Cash is king when it comes to investing. FCX’s free cash flow (“FCF”) per share for the trailing twelve months was +0.66. Comparatively, ETP’s free cash flow per share was -. On a percent-of-sales basis, FCX’s free cash flow was 5.83% while ETP converted 0% of its revenues into cash flow. This means that, for a given level of sales, FCX is able to generate more free cash flow for investors.Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. FCX has a current ratio of 2.30 compared to 0.90 for ETP. This means that FCX can more easily cover its most immediate liabilities over the next twelve months. FCX’s debt-to-equity ratio is 1.34 versus a D/E of 1.28 for ETP. FCX is therefore the more solvent of the two companies, and has lower financial risk.Valuation
FCX trades at a forward P/E of 13.70, a P/B of 2.81, and a P/S of 1.36, compared to a forward P/E of 14.11, a P/B of 0.85, and a P/S of 0.75 for ETP. FCX is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. FCX is currently priced at a -18.23% to its one-year price target of 20.52. Comparatively, ETP is -20.91% relative to its price target of 24.05. This suggests that ETP is the better investment over the next year.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. FCX has a beta of 2.48 and ETP’s beta is 0.98. ETP’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. FCX has a short ratio of 2.15 compared to a short interest of 2.53 for ETP. This implies that the market is currently less bearish on the outlook for FCX.Summary
Freeport-McMoRan Inc. (NYSE:FCX) beats Energy Transfer Partners, L.P. (NYSE:ETP) on a total of 8 of the 14 factors compared between the two stocks. FCX is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. Finally, FCX has better sentiment signals based on short interest.