Three Notable Stocks Worth Investing in During a Price Drop Before Year's End
This year has been fruitful for the market, with the S&P 500 climbing nearly 27% so far. However, investors in copper miner Freeport-McMoRan (decrease of 0.45% or 1% annually), contract logistics company GXO Logistics (dropped 1.93%), and advanced composites manufacturer Hexcel (1.97% decrease) haven't had such a positive experience.
However, the underperformance is largely due to short-term setbacks that should be resolved by 2025. These companies hold strong potential for superior returns in the future.
Freeport-McMoRan: Prepare for a new phase
The price of copper has witnessed a rise in 2024, beginning at approximately $3.85 per pound, then climbing above $5 per pound in the early spring, only to drop back to around $4.25 as of now. The long-term prospects for copper and subsequently for Freeport-McMoRan suffered a blow due to an adjustment of expectations concerning the long-term growth of electric vehicles (EVs) and the speed of the clean energy transition.
The long-term demand case for copper relies on its use in EVs (using more pounds than conventional internal combustion engines) and its significance to the clean energy transition (renewable energy and the infrastructure required to connect it to the grid, EV charging networks, storage capacity, etc.).
Regrettably, these points lost some traction this year as high-interest rates hindered EV sales and investment. Simultaneously, the rising cost and intricacy of renewable energy have dampened expectations for its growth in the near future. While it's true that the clean energy transition is progressing, a lower interest rate environment should stimulate economic growth and traditional sources of copper demand.
In addition, Freeport-McMoRan has an impressive leaching project underway, which will bring about cost-effective production growth in the approaching years. This is a considerable advantage considering the usual challenges and expense involved in creating new copper mines. As a result, Freeport-McMoRan has substantial growth potential ahead.
GXO Logistics: A chance to buy low
GXO Logistics is a logistics provider that excels in creating and managing e-commerce warehousing spaces for businesses aiming to outsource the process and concentrate on their primary activities.
The company's long-term growth prospects are promising. They stem from the opportunity to accompany existing clients into new markets when they expand internationally and from gaining new clients eager to hand off an increasingly complex function to GXO's expertise. Moreover, the growing adoption of technology (such as robotics, automation, and smart warehouses) enhances the value that GXO offers its clients as implementing these technologies requires significant expertise.
The long-term outlook is encouraging, and the decline in the share price in 2024 is down to two transient factors. Firstly, the e-commerce warehousing market has taken longer than anticipated to stabilize, not least because interest rates remained high longer than many had forecast in 2024. Secondly, speculation about a potential takeover prompted the sale of shares by investors, leading to a drop in the stock price.
However, both of these issues will soon be behind us. With the speculation surrounding the stock now dissipated, investors can now evaluate the company's improving markets. Indeed, CEO Malcolm Wilson informed investors that "inventory levels are returning to normal, and demand for e-commerce capacity is accelerating." This puts the stock in a prime position to rebound in 2025 as the trend towards increasing e-commerce spending continues to grow.
Hexcel: A matter of time, not ability
Hexcel manufactures advanced composites primarily for use in aerospace, defense, and industrial applications (44% of 2023 revenue from Airbus and its subcontractors, and 15% from Boeing and its subcontractors). The stock's decline is mainly due to reduced expectations for airplane deliveries this year by these two critical clients.
This is especially disappointing given Hexcel's intent to expand airplane production. However, Airbus and Boeing continue to secure orders, maintaining multiyear backlogs. Additionally, composites are expected to play an increasing role in the value of an airplane due to their weight and strength advantages over traditional materials like aluminum, improving the aircraft's productivity and reducing emissions.
Ultimately, both Airbus and Boeing will strive to ramp up production, benefiting Hexcel's bottom line.
After acknowledging the short-term challenges faced by Hexcel, it's important to remember that the company's long-term prospects remain promising due to the increasing role of composites in airplane production. With large orders secured by Airbus and Boeing, a multiyear backlog ensures a future increase in demand for Hexcel's advanced composites. (money, investing, future)
GXO Logistics' current stock price dip is driven by transient factors, including a slow e-commerce warehousing market stabilization and speculation about a potential takeover. However, with these issues being resolved, the company's growing adoption of technology and promising international expansion opportunities suggest that GXO Logistics is a compelling investment choice for the future. (money, finance, investing)
