Copper miner Freeport-McMoRan (FCX -0.84%) and GE Healthcare Technologies (GEHC -0.25%) are both compelling buys based on their current earnings and their growth potential. Here's why they are worth adding to a diversified portfolio. 

Freeport-McMoRan electrifies the future

The case for copper is based on a long-term marginal increase in demand from the "electrification of everything," a catch-all phrase to describe the increase in investment in clean and connected technologies that use electricity. This includes 5G infrastructure; industrial automation; smart buildings/infrastructure; electric transport, including trains and electric vehicles (and charging networks); and renewable energy, including transmission and distribution networks.

On the supply side, the increasing difficulty of obtaining mining permits due to environmental regulation implies restrictions on new supply.

If you believe in a future shaped by these demand and supply forces and a long-term uptrend in the price of copper, then Freeport-McMoRan is pretty much a no-brainer stock to buy. The company's revenue and earnings are a factor of the price of copper. 

Freeport-McMoRan is a buy even for those who don't think the price of copper will surge

That said, there are two other powerful arguments in favor of buying Freeport-McMoRan, and they apply even if you are neutral on where the price of copper is headed. 

  • Based on management's estimates for profitability at the current price of copper, the stock is an excellent value.
  • Management is developing a leaching technology that could lead to copper being recovered from existing stockpiles.

Having started the year at around $4 per pound, the price of copper has oscillated from a high of $4.36 per pound to a low of $3.50 per pound and stands at $3.90 at the time of this writing. To illustrate its potential profitability at a range of values for copper, management provides data outlining its earnings, before, interest, taxation, depreciation, and amortization (EBITDA) in the 2024 to 2025 time frame based on a range of copper prices.

At a price of $4 per pound, the company says it will make $10.5 billion in EBITDA, and based on the current enterprise value (market cap plus net debt) of $60 billion, that would mean an EV/EBITDA multiple 5.7. That's a great value, so if you are penciling in the price of copper to stay where it is, it makes sense to buy the stock. 

The company's leaching initiatives are set to bear fruit this year, with management targeting a run rate of 200 million pounds of copper from them by the end of 2023. After making investments, management believes it can reach a run rate of 800 million pounds of copper in the future. These figures are significant considering management is targeting 4.1 billion pounds of copper sales in 2023. The 200 million is equivalent to nearly 5% of that figure. 

It all makes Freeport-McMoRan an excellent stock for copper bulls and agnostics. 

GE Healthcare Technologies has potential

Despite a substantial rise since its spinoff earlier this year from General Electric, GE Healthcare Technologies stock still looks like a great value based on its potential to grow earnings and cash flow. In addition, it's possible that the current share price is somewhat artificially depressed due to the recent secondary offering of 25 million shares in the stock from GE. 

As a reminder, GE retained a 19.9% stake in GE Healthcare after the spinoff but recently decided to exchange 25 million of its 90.3 million remaining shares for debt held by Morgan Stanley. As such, it's possible that institutions held off buying the stock as they anticipated an overhang of shares coming to the market. 

Near-term considerations aside, GE Healthcare, looks a great value. Many people consider healthcare and medical technology to be relatively stable industries. While that may be true from a demand perspective, GE Healthcare and imaging/ultrasound rivals Philips and Siemens Healthineers suffered from rising costs in 2022 due to surging raw material inflation and the ongoing supply chain crisis. As such, they all got hit with increasing costs and suffered some inability to deliver products.

GE Healthcare Technologies is set for margin recovery

GE started 2022 expecting its healthcare segment (which later became GE Healthcare) to notch $3.1 billion to $3.3 billion in segment profit for the full year, but ultimately it came in with just $2.7 billion. The shortfall is primarily a consequence of the abovementioned issues. 

However, the supply chain issues should ease, increasing margins at GE Healthcare. In addition, the company has a raft of growth initiatives in play to accelerate earnings growth.

Wall Street analysts have the company's operating profit expanding at an 11% annual rate to 2025 and its free cash flow hitting almost $2 billion in 2023, putting it on a forward price-to-free-cash-flow multiple of around 18. That's too cheap for a company growing earnings at a double-digit rate.