Copper miner vs. Tesla: ESG portfolio manager's stock picks

Copper (HG=F) or cars — Is there a better pick for investor portfolios during times of uncertainty?

Hennessy Stance ESG ETF portfolio manager Bill Davis joins Julie Hyman on the newest installment of Good Buy or Goodbye to give insight into his investing preferences when it comes to the commodities and autos spaces, and which stocks will provide the best value for your portfolio.

Davis picks Freeport-McMoRan (FCX) as his Good Buy, citing its operation size being one of the largest mining operators in the US and copper's standing as a high-demand metal. Copper shortages in tandem with high barrier costs to enter the mining industry, leaves little competition for Freeport-McMoRan.

"It takes billions of dollars to even begin to think about mining copper. To give you an example, one of the challenges in the copper space is that over time, the quality of the copper as you extracted from the mine goes down somewhat. So you have to make up for it by increasing the milling rates and the productivity of the extraction," Davis explains.

Davis pivots, discussing why EV maker Tesla (TSLA) is his Goodbye, first citing its loss of market dominance within the last year. He continues by breaking down the Tesla's recent discounts on its electric vehicle lineup to bring in more customers — especially in China's auto markets — and CEO Elon Musk's behavior:

"The combination of high interest rates and expensive cars is not a great recipe for growth. But I think that speaks to kind of the beginning of the foundation crumbling with Tesla. And that is that they in an effort to become the leader that they were — and I don't take anything away from some of the things that they accomplished — they also basically ceded the market to the low-cost entrants and sort of the next evolution of growth in the EV space is not going to be people buying $100,000 sedans."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Nicholas Jacobino

Video transcript

It's a big, noisy universe of stocks out there.

Welcome to goodbye or goodbye.

Our goal.

To help cut through that noise to navigate the best moves for your portfolio.

Today we're focusing on copper and cars, which is worth adding to your portfolio, which is better left behind.

I'm here with Bill Davis.

He's Hennessy stance EG ETF portfolio manager.

Thanks for being here.

Appreciate it.

So let's get to the stock you like First, we're talking about Freeport, Mac and copper and Gold.

I don't actually know if the copper and gold is still part of the name, but I'm used to saying copper and gold is part of the name and it helps me remember what they do.

Um, the stock up a little bit year to date here.

So let's talk about why you like it.

It is one of the bigger miners out there in the the copper business in particular, right?

Yeah, for sure.

And in fact, in the US, they might be the number one copper miner they are.

I think they account for about 8% of global, uh, copper mining and production.

Um, so they're a massive player.

Uh, and they have been at this for a very long time, right?

So established player here, reason to like them.

Copper.

Everybody needs copper.

So that's one of the reasons just that.

There's always sort of an underlying demand here for copper.

You like the the stock for that.

There's there's always been an underlying demand, but that demand is going to accelerate.

I mean, there's copper in here.

There's copper, uh, in, you know, medical devices.

It's in aeroplanes.

It's in EVs.

Um, it's indispensable to modern life, and especially as we trans as energy transitions to cleaner sources of energy, copper is a big part of all of that.

So it's stable.

Um, it's in every building, all the infrastructure, so it's not going anywhere.

Demand is going to increase, um, in the years ahead, and the supply of it is somewhat static.

I mean, it takes a long time to develop a mine to develop proven reserves.

It takes a lot of capital.

Uh, and so, uh, I think it's kind of a very enduring story.

Interesting.

And then also there's the idea that there's this wide economic mode for the reasons you were just describing.

There aren't a lot of copper mining start ups, for example.

It's a hard business to get into.

Yeah, no.

It takes billions of dollars to, uh, even begin to think about mining copper.

Um, you know, to give you an example, Um, one of the challenges in the copper space is that over time, the quality of the copper as you extract it from the mine goes down somewhat, so you have to make up for it by increasing the milling rates and the productivity of the extraction.

So that's kind of like all a big part of the story.

Yet Freeport is proven to be very, very good at that.

They understand how to balance capital expenditures, um, improvements in milling.

Their reserves are very proven and vast, and they're also diversified.

So they they've got a big presence in the US.

But in Chile, Peru and Indonesia are where their major operations are.

So we always like to point out risks potential risks for people's stocks that they like and in this case, a softening global economy.

I mean, I am curious how much Freeport MCM tracks to the stock price tracks to the price of copper, and if there is any softening demand.

You tend to see the price of copper go down.

Yeah, well, they're definitely price takers, right?

So they are absolutely tracking the underlying commodity.

Um, however, I think in 2024 they have a telegraph that they're gonna do something like 5.8 billion in operating, uh, in consolidated operating cash flow from all their business units, which also include gold and some other things.

Um, every 10 cent change in the price of copper is worth 400 million to them.

So if copper goes from, I don't know, I think it's like $4.23 goes up to $5.23.

That's actually massive.

Um, there is, however, soft demand right now, and there's also kind of, like, um, high inventory levels, and that's not a great combination.

And I think that's why you see some of the fluctuations, but because it's a commodity, it's always going to be somewhat volatile.

But I believe that number one, the the pace of technology, the pace of energy transition is actually going to offset any global demand softness.

Um, especially in brand new industries and EVs are a great example of that.

I mean, that wasn't an industry eight years ago, and it's and by 2032 3rd of all cars sold around the world are gonna be EV.

So, uh, the demand is gonna go up.

It's gonna be volatile.

But I think it's an important well run.

We're an ESG manager within the Hennessy family, and it's unusual to see an ESG.

Manager talking about a mining spot.

I was I have to say I was wondering about that advocating for it, But, um, you know, this is essential to kind of the world that we want to live in.

And ultimately, uh, what we're interested in is finding the best mining companies, the ones that understand that in order to have a licence to operate, they need to be, um, you know, cognizant of the communities that they operate in the workforces, indigenous populations, all of that.

And Freeport is very good at all of those things.

OK, so that's the stock you like.

It's in the ETF.

Obviously, let's talk about another stock.

That's in a lot of ESG ETF.

It's Tesla, but you guys don't like it as much.

Tesla, Um you know, has had some issues this year, right?

Losing market dominance.

Um, we have seen, um, its share go down.

We've seen EV sales generally also challenged, right?

Yeah, right.

That the 100%.

The combination of high interest rates and expensive cars is not a great, uh, recipe for growth.

Um, but I think that speaks to kind of the beginning of the foundation crumbling with Tesla, and that is that they, you know, in an effort to become the leader that they were.

And I'll take anything away from some of the things that they accomplished.

They also basically seeded the market to the low cost entrance and sort of the next evolution of growth in the EV space is not going to be people buying $100,000 sedans.

It's going to be 25 $30,000 cars or in other parts of the world.

$10,000 EVs.

And I think that they are late to that game.

And as a result, you know, they're not only losing market share, but they're also their performance is really kind of ho hum, right?

And they're discounting now to try to move product and so that's been having an effect on margins.

That's right.

So their margins are going down.

Their profitability is way down.

Um, you know, they have.

Obviously, the cyber truck was going to be a big thing.

I think the cyber truck has not been a big thing, and it's been plagued by, um, you know, recalls one right after the other.

Now their next big thing is going to be, um, Robo, the Robo Taxis, and we're going to see how that works out.

Yes, we will.

And then the last thing we want to point out is Elon Musk himself.

And it's very interesting talking to people investors about Elon Musk because some just love him and everything Does some say?

Well, he you know, he's colourful, but it's a solid company.

And then there's some who maybe are in your campus.

They they don't have the patience for his his antics, his sort of off CEO antics.

Yeah, I think Antic is a good word, Julie.

I mean, Elon Musk is Elon musk, you know, like him or hate him.

But the reality is he's a part time CEO, uh, running this company, and I think he is alienated the one base that's actually super important to him.

So a lot of people aren't gonna go buy a new Tesla when they can go buy a used one.

And this is very anecdotal.

And by the way, I drive a Tesla and I'm on my second one.

But for myself and pretty much everybody I know, we're sort of, you know, um, counting the days until we can swap it out and get something else other than a Tesla.

So and I think a lot of that is just, um, as good as he's been for the technology.

I think he's equally bad on the brand side of things, and I think that's super important.

Um, let's get to the counter argument, though quickly here, which is, if they do come out with that other car that is more affordable.

As you said, that's what the market wants.

Well, OK, so they're now saying at the end of 2025 which means probably sometime in 2026 so it's not going to happen any time soon.

I also worry that with the, um, driverless stuff, the taxis, that they're rolling out any real bad news there and I think bad news gets amplified in things like taxis, where people, you know, expect to, um, leave a place and arrive at a place 15 minutes later or five minutes later in one piece.

But I think that, um, any kinds of problems that they have with that roll out, I think could be really harmful to the brand moving forward.

So I do think if the roll out occurs on time, if there is massive interest and demand, um, for low end, you know, um, Price point vehicles I think that this could in effect, become a buy again.

But I think until then it's kind of dead in the water.

OK, well, we'll keep in touch with all that stuff happens.

Bill, Thanks so much for coming in.

Really appreciate it.

And thank you so much for watching goodbye or goodbye.

We'll bring you new episodes three times a week at 3:30 p.m. Eastern