Freeport-McMoRan Inc. (FCX) vs. Canopy Growth Corporation (CGC): Comparing the Copper Industry’s Most Active Stocks

Freeport-McMoRan Inc. (NYSE:FCX) shares are down more than -8.63% this year and recently decreased -1.15% or -$0.11 to settle at $9.42. Canopy Growth Corporation (NYSE:CGC), on the other hand, is up 2.94% year to date as of 09/06/2019. It currently trades at $27.66 and has returned 14.63% during the past week.

Freeport-McMoRan Inc. (NYSE:FCX) and Canopy Growth Corporation (NYSE:CGC) are the two most active stocks in the Copper industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect FCX to grow earnings at a -2.41% annual rate over the next 5 years.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. Freeport-McMoRan Inc. (FCX) has an EBITDA margin of 10.82%. This suggests that FCX underlying business is more profitable

Cash Flow

The value of a stock is simply the present value of its future free cash flows. FCX’s free cash flow (“FCF”) per share for the trailing twelve months was -0.10. Comparatively, CGC’s free cash flow per share was -1.07. On a percent-of-sales basis, FCX’s free cash flow was -0.78% while CGC converted -0.18% of its revenues into cash flow. This means that, for a given level of sales, CGC is able to generate more free cash flow for investors.

Valuation

FCX trades at a forward P/E of 14.45, a P/B of 1.41, and a P/S of 0.87, compared to a P/B of 5.23, for CGC. FCX is the cheaper of the two stocks on book value basis but is expensive in terms of P/E 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

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. FCX is currently priced at a -28.53% to its one-year price target of 13.18.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. FCX has a short ratio of 2.15 compared to a short interest of 7.40 for CGC. This implies that the market is currently less bearish on the outlook for FCX.

Summary

Canopy Growth Corporation (NYSE:CGC) beats Freeport-McMoRan Inc. (NYSE:FCX) on a total of 7 of the 13 factors compared between the two stocks. CGC is more profitable, has a higher cash conversion rate and has lower financial risk. In terms of valuation, CGC is the cheaper of the two stocks on an earnings and sales basis,