Southern Copper Corp (NYSE:SCCO) Passes Key Quality Investing Screen

For investors aiming to assemble a portfolio of durable, long-term holdings, the ideas of quality investing offer a strong framework. This method centers on finding companies with lasting competitive strengths, sound financial condition, and the capacity to produce steady and increasing profits over many years. Instead of searching for large discounts, quality investors frequently accept paying a reasonable price for outstanding businesses they can hold for a very long period. One organized method to discover such prospects is through a strict screening process, like the "Caviar Cruise" screen, which selects for measurable signs of quality such as high returns on capital, solid profit growth, and sound cash flow production.

A recent run of this screen identified SOUTHERN COPPER CORP (NYSE:SCCO) as a possible prospect. As a leading global producer of copper, molybdenum, zinc, and silver, the company's activities in Peru and Mexico position it centrally within the global energy shift and infrastructure development. We will look at how its financial profile matches important quality investing standards.

Matching the Central Quality Standards

The Caviar Cruise screen uses several strict filters to find companies with a record of high performance and a sound base for what comes next. Southern Copper's measurements show a strong match:

• High Return on Invested Capital (ROIC): A central part of quality investing, a high ROIC shows a company's skill at creating profits from its capital foundation. Southern Copper's ROIC (leaving out cash, goodwill, and intangibles) is a notable 27.64%, well above the screen's lowest limit of 15%. This implies the company has clear competitive strengths, probably coming from its superior, low-cost mineral reserves, and functions with high efficiency.
• Sound and Rising Profitability Growth: The screen demands that a company's Earnings Before Interest and Taxes (EBIT) increase more quickly than its revenue over a five-year span, pointing to widening profit margins and pricing ability. Southern Copper's figures are notable:
  • Revenue Growth (5Y CAGR): 5.10%
  • EBIT Growth (5Y CAGR): 15.07% This clear lead of EBIT growth over revenue growth shows the company has effectively turned top-line gains into even higher bottom-line profitability in recent years.
• Notable Financial Condition and Cash Flow: Quality companies are not weighed down by high debt and produce sufficient cash. The screen assesses this by comparing total debt to free cash flow (FCF). Southern Copper's Debt/FCF ratio of 1.94 is very good, meaning the company could in theory settle all its debt with under two years of present cash flow. Also, its five-year average Profit Quality, which calculates how much net income becomes actual free cash flow, is a solid 103.23%, showing its reported earnings are supported by actual cash.

A View of Foundational Soundness

An examination of Southern Copper's wider fundamental analysis report supports the image shown by the screen. The company receives a sound overall fundamental score of 7 out of 10, with especially high marks in Profitability (10/10) and Financial Health (8/10).

Important points from the report are:

• Excellent Profitability: The company has sector-leading margins, with a Profit Margin of 30.98% and an Operating Margin of 50.25%, both of which have been getting better.
• Sound Solvency and Liquidity: Beyond the good Debt/FCF ratio, the company has an Altman-Z score showing no bankruptcy danger and has very high Current and Quick Ratios, indicating full ability to meet near-term responsibilities.
• Steady Growth Path: The company has shown sound historical growth in both revenue and earnings per share.
• Valuation Points: The report states that while Southern Copper's Price-to-Earnings ratio seems high alone, it is somewhat low compared to its industry group. Its excellent profitability may support a higher valuation for quality investors.

Points for the Quality Investor

While the numerical filters present a convincing account, quality investing also requires subjective assessment. Southern Copper's business is linked to changing commodity prices, which brings instability that pure quality investors often try to minimize. However, the long-term demand outlook for copper, fueled by electrification, renewable energy, and electric vehicles, provides a strong, multi-decade growth argument. The company's low-cost resource base and geographic location can be seen as a significant competitive strength (or "moat") in the mining industry.

For investors who accept this long-term demand outlook, Southern Copper represents an example of a company with the operational high standards and financial soundness to possibly succeed across cycles. Its high returns on capital, controlled growth, and very strong balance sheet are the precise characteristics quality screens are made to identify.

You can review other companies that meet the Caviar Cruise quality screen by running the screen yourself here.

Disclaimer: This article is for information only and does not form financial guidance, a suggestion, or an offer to buy or sell any security. Investing carries risk, including the possible loss of principal. You should perform your own investigation and talk with a qualified financial advisor before making any investment choices.