The first months of this year have been a roller coaster ride for index investors. The S&P 500 Index began 2023 below 3,900. One month later is rose above 4,100. But by the end of February, it was back below 4,000 only to rise above 4,100 at the start of April.

Where it will be at the end of this month is anybody’s guess. Over the next two weeks, most companies will release their Q1 results for this year. If those come in worse than expected, then I would expect to see the S&P 500 fall back below 4,000.

However, there is one company that I am confident will report good news this week. That is gold, silver, and copper miner Freeport-McMoRan (NYSE: FCX). The company is based in Phoenix and operates mines in North America, South America, Asia, and the Middle East.

Since the start of this year, prices of most precious metals have increased substantially. Gold is approaching its all-time high price near $2,075 per ounce. Silver has risen more than 25% since bottoming out below $20 an ounce last month. The price of copper jumped 10% in early January and has stayed there ever since.

That is bad news for manufacturers and retailers that use those metals in their products. But it is good news for miners since their cost of producing those metals is fixed. That means their top-line revenue has gone up while their operating expenses have remained about the same.

That translates into bigger profit margins. Freeport-McMoRan admitted as much a month ago when it declared its next dividend payment. In addition to the base dividend of 7.5 cents per share, the board approved a matching variable dividend of 7.5 cents.

Taking a Flyer

I doubt many investors own FCX for its dividend. The next quarterly distribution equates to a forward annual dividend yield of roughly 3%. That’s less than the 3.4% yield available last week on the 10-year Treasury Note.

However, the fact that the company is generating more cash than it knows what to do with is compelling. Excess cash flow can be used to pay for a lot of things that are accretive to per share earnings including stock repurchases and debt reduction.

I will be very interested to see how the first quarter worked out for Freeport-McMoRan when those numbers are released on the morning of April 21. My guess is the company will surprise Wall Street with strong results.

For that reason, I decided to take a flyer on FCX last week in my personal trading account. I bought a call option that expires at the end of this week at the $41 strike price for $2. A call option increases in value when the price of the underlying security goes up.

For this trade to be profitable, FCX must rise above $43 by the time this option expires. When I placed the order last Thursday morning, it was trading at $42.20. That means it must appreciate another 80 cents for me to reach breakeven.

If FCX makes it to $45 by the end of this week, I will have doubled my money. It was trading above that price when the company released its 2022 full year results three months ago.

After that, it gradually receded below $36 in the aftermath of the Silicon Valley Bank fiasco. It has staged a nice recovery since then but is still undervalued based on current precious metal prices.

So Far, So Good

This isn’t the first time that I have bet on gold prices this year. Ten weeks ago, I suggested a call option trade on SPDR Gold Shares (NYSE: GLD). GLD is an exchange-traded fund that mimics the directional price movements of gold.

Last week, that trade was up more than 40% from where I recommended it. That option does not expire until September 15, so it still has a lot more time to appreciate.

In fact, this isn’t the first time that I have recommended Freeport-McMoRan to my readers. In November 2021, I issued a trade alert to subscribers of my PF Pro trading service. At that time, FCX was trading near $40.

I recommended a call option at the $35 strike price that expired in January 2023 at a limit price of $10. Four months later after FCX had risen above $51, that trade could be closed out for a gain of better than 60%.

So far, my track record for betting on the price of gold has been quite good. This time, I already know what the price of gold (and copper and silver) is. Now, I’m betting that Wall Street is underestimating how valuable that is to the companies that mine them.

Editor’s Note: There’s money to be made in the mayhem that creates stock market uncertainty. That’s why we launched the Mayhem Trader investment service two years ago.

Mayhem Trader, helmed by our colleague Jim Pearce, made a lot of money for its subscribers last year, and 2023 is shaping up to be another banner year.

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