Southern Copper Corp (NYSE:SCCO) Stands Out as a Quality Investing Candidate

For investors aiming to assemble a portfolio of durable, long-term holdings, the principles of quality investing offer a useful 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 looking for large discounts, quality investors are prepared to pay a reasonable price for outstanding businesses they can hold for a very long time. A structured method to start this process is with a stock screener that selects for measurable signs of quality, such as solid profitability, effective use of capital, and a sound balance sheet.

One company that appears from such a quality-oriented screen is Southern Copper Corp (NYSE:SCCO), a leading global producer of copper, molybdenum, zinc, and silver. By using a group of filters based on quality investing principles, we can assess how SCCO's financial profile matches the traits desired by long-term investors.

Matching the Central Standards for Quality

A basic quality screen searches for proof of past growth, high returns on capital, and financial soundness. Southern Copper shows solid results across these important measures:

• Profitable Growth: A quality company should display not only rising revenue, but also, more critically, growth in its core operating profit (EBIT). SCCO's 5-year EBIT compound annual growth rate (CAGR) of 15.07% is much higher than its revenue growth of 5.10%. This difference is a good sign, showing the company has been able to turn more of each sales dollar into operating profit, probably through better operations, cost management, or pricing ability.
• Outstanding Capital Efficiency: Possibly the most important measure for a quality investor is the Return on Invested Capital (ROIC), which calculates how well a company produces profits from the capital it has invested. SCCO's ROIC (leaving out cash, goodwill, and intangibles) is a notable 27.64%. A number regularly over 15% is a sign of a business with a strong competitive position and good management, as it shows the company is generating significant value from its investments.
• Sound Financial Condition: Quality companies are not weighed down by debt. A careful test is the Debt-to-Free Cash Flow ratio, which indicates how many years it would take to clear all debt using current cash flow. SCCO's ratio of 1.94 is very good, showing it could in theory remove its debt in less than two years. This offers great financial adaptability and stability during economic slowdowns.
• High-Quality Earnings: The "Profit Quality" measure compares free cash flow to net income, showing how much of a company's reported profit becomes actual, usable cash. An average above 100% for the past five years, as seen with SCCO at 103.23%, points to very high-quality earnings with little dependence on non-cash items or accounting changes. This cash can be used to pay dividends, reinvest for growth, or make the balance sheet even stronger.

A Summary of Fundamental Soundness

A wider look at Southern Copper's fundamental analysis report supports the results from the quality screen. The company receives a high total rating, performing very well in Profitability and Financial Health.

• Profitability Leader: SCCO's margins are very good within the Metals & Mining industry. Its operating margin is over 50%, and its return on equity is above 36%, putting it in the best group of its competitors. These numbers are a direct outcome of its high-grade, low-cost resources and effective operations.
• Sound Balance Sheet: The company's health score is backed by high liquidity ratios and a reasonable debt level compared to its cash generation, as seen in the debt-to-FCF analysis. Its Altman Z-Score shows a very small short-term chance of financial trouble.
• Valuation Note: The main point of care in the report concerns Valuation. SCCO's current Price-to-Earnings ratio is high compared to both the wider market and its own past, which might make some value-focused investors hesitant. However, quality investors frequently state that better businesses can maintain higher valuations, and the high growth and profitability scores may offer some reason for the current price.

For a complete look at these ratings, you can see the full fundamental analysis report for SCCO.

The Quality Investor's View

For an investor using a quality strategy, Southern Copper offers a useful example. It works in an industry basic to global electrification and infrastructure, a possible long-term growth direction. Its top-tier resource portfolio provides a competitive edge in cost and size. The numerical screening standards—superior ROIC, solid and increasing profitability, and a strong balance sheet—all indicate a company with the traits quality investors want: stability, effectiveness, and the capacity to build value over time.

While the screen finds numerical strengths, a complete quality investing study would also think about non-numerical aspects like management's history of capital allocation, the political risks of working in Peru and Mexico, and the changing nature of commodity prices. The current high valuation also requires thoughtful study of the price paid for this quality.

Locating Other Quality Possibilities

Southern Copper is one instance found through a structured quality investing screen. Investors wanting to find other companies that meet similar strict financial standards can examine the screen on their own.

Click here to view the Caviar Cruise quality investing screen and see more potential candidates.

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Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.