Southern Copper Corp (NYSE:SCCO) Excels as a Quality Investment Under the Caviar Cruise Strategy

The Caviar Cruise stock screening strategy is based on quality investing, a method that focuses on companies with solid fundamentals, lasting competitive edges, and steady growth. While value investing looks for undervalued stocks, quality investing targets businesses with high profitability, smart capital use, and strength during economic shifts. The Caviar Cruise screen uses strict financial checks to find these companies, highlighting measures like revenue and EBIT growth, return on invested capital (ROIC), debt levels, and profit quality. These steps help investors spot firms that can provide long-term gains through strong operations, not short-term market gaps.

SOUTHERN COPPER CORP (NYSE:SCCO) stands out as a strong fit under this approach, meeting many key standards for quality investing. Here’s how SCCO matches the Caviar Cruise criteria:

Revenue and EBIT Growth

The screen looks for at least a 5% compound annual growth rate (CAGR) for revenue and EBIT over the last five years. SCCO surpasses these marks, with:

• Revenue growth (5Y CAGR): 5.1%
• EBIT growth (5Y CAGR): 15.07%

The difference between EBIT and revenue growth points to better operational efficiency, a sign of a quality business. This implies SCCO gains from scale or pricing strength, key for maintaining profits in industries like mining.

Return on Invested Capital (ROIC)

ROIC shows how well a company earns profits from its investments. The Caviar Cruise screen requires an ROIC above 15%, and SCCO achieves 27.48% (excluding cash, goodwill, and intangibles). This beats 97% of its peers in metals and mining, showing smart capital use and strong operations. High ROIC is central to quality investing, as it reflects a lasting edge and the ability to reinvest earnings well.

Debt Sustainability

The screen checks for companies with a debt-to-free-cash-flow (FCF) ratio under 5, ensuring reasonable debt levels. SCCO’s ratio of 2.16 means it could pay off all debt in just over two years using current FCF, a sign of financial strength. Free cash flow matters to quality investors, as it supports dividends, buybacks, and growth without heavy borrowing.

Profit Quality

Profit quality, measured as free cash flow to net income, checks how much reported profit turns into real cash. SCCO’s five-year average of 103.2% is above the 75% target, showing earnings are fully backed by cash flow. This is important for quality investors, as it lowers the risk of accounting issues and confirms profit sustainability.

Fundamental Analysis Summary

SCCO’s fundamental report backs its fit for quality investors:

• Profitability: Scores 10/10, with top-tier margins (gross margin: 59%, operating margin: 49.4%) and ROIC.
• Financial Health: Scores 8/10, with good liquidity (current ratio: 3.71) and a stable debt setup.
• Valuation: Fairly priced compared to peers, with a P/E of 20.3 versus the industry average of 27.8.
• Growth: Past revenue and EPS growth are strong, though future estimates are more modest (5.1% revenue CAGR).

SCCO’s dividend yield (2.68%) is slightly below the industry average, but its payout ratio (43.8%) is sustainable, and its history of steady payments adds value for income-focused quality investors.

Additional Points for Quality Investors

Beyond numbers, SCCO has traits quality investors value:

• Global Reach: Mines in Peru, Mexico, and South America spread out geopolitical risk.
• Commodity Role: Copper demand is linked to long-term trends like electrification and renewable energy.
• Pricing Strength: As a low-cost producer, SCCO handles price swings better than peers.

For investors looking for similar quality stocks, the Caviar Cruise screen provides a selected list of top-tier options.

Disclaimer: This analysis is for informational purposes only and does not constitute investment advice. Investors should conduct their own due diligence or consult a financial advisor before making decisions.