Southern Copper Stock Analysis – Offering 10% Yearly Returns
Southern Copper Stock Analysis – Summary
- If you’re looking for low-cost mining, high margins, long life assets and growth, SCCO is for you.
- On top of being a quality business, it gives you exposure to copper. It is expected that copper prices will increase due to growing demand and limited supply.
- SCCO pays a healthy dividend alongside promising production growth of 105% over the next seven years.
Southern Copper Corporation Overview
Southern Copper Corporation (SCCO) is one of the best copper miners out there. It owns mining assets with 70 years of mining ahead, and its mining costs are among the lowest in the industry. Given the quality of the assets, the company is investing in growth that should lead to a 105% increase in production by 2026.
Ontop of everything, SCCO gives exposure to copper that has some very interesting fundamentals on its own. You can read my article on why you might regret not having portfolio exposure to copper here.
SCCO Stock Price
Great businesses with great assets and competitive advantages are usually expensively priced. However, SCCO has recently seen some price weakness that creates an interesting buying opportunity.
Given the quality of the assets, high cash flows, growth and the positive long-term outlook for copper, it is very likely that the stock will surpass the 2018 high in the coming five years. If the stock reaches $60 over the next five years, it would imply a yearly return of 10% from current levels. Add the dividend current dividend yield of 4.5% and you could even reach 15% per year.
However, there are also some risks. The company is entering into a growth period with high capital expenditures expected over the next five years.
Source: SCCO Investor Relations
The average capital expenditures over the last five years have been around $1 billion. The management is planning to increase the average expenditures to $2 billion, with peak capex of $3 billion in 2021.
If copper prices remain subdued, in combination with high capex requirements, I think the company could be forced to cut the dividend. A dividend cut is something few investors like and would put more pressure on the stock. On the other hand, it might represent a great opportunity for those who would love to buy a great asset at a great price. That is the card I am playing with SCCO; I know I might miss much of the upside, but sometimes, if yo’re patient, you might just get the opportunity to buy a low-risk/high-reward investment. The more such investments you follow, the more opportunities you’ll get. You only need a few in a decade.
If you wish to hear more about the company and my reasoning, please enjoy the video below.
SCCO Stock video content
- 0:00 Introduction
- 2:24 Company overview
- 3:59 Investment thesis and earnings model
- 5:52 My investing approach to SCCO
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. As said, I will wait for SCCO stock price to be at my comfortable level and then compare to other investing options on my watch list.
Disclaimer: The opinions expressed – imperfect and often subject to change – are not intended nor should be taken as advice or guidance. The Sven Carlin Stock Market Research Platform is not an investment advisor or financial advisor. The Sven Carlin Stock Market Research Platform provides research, it does not advise. The information enclosed in this article is deemed to be accurate and reliable, but is not guaranteed by the author.