Ero Copper Corp: The Hedge Fund Favorite in Copper Stocks?

Ero Copper Corp (ERO) has been gaining traction among hedge funds, with its exploration-focused model and growth potential catching the eye of investors. As the copper market consolidates and Ero's stock price declines, the company's fundamentals remain intact, making it an attractive investment opportunity. This article explores the reasons behind ERO's appeal to hedge funds and its potential as a top copper stock.

Ero Copper's exploration-focused model and growth potential have contributed to its appeal among hedge funds. The company's aggressive investment strategy, with capex projections exceeding $300 million in 2024, aligns with its exploration-focused model. This strategy has led to a notable decline in the company's stock price, dropping from $21.42 to $15.31 since June. However, Ero's fundamentals remain strong, with the company generating operational cash flow and expected EBITDA of around $180 million from copper and $120 million from gold.

The Tucuma Project, expected to ramp up copper production from 10,000 tons in 2024 to over 50,000 tons in 2025, offers a compelling growth catalyst for Ero Copper. At current copper prices of $4 per pound, Ero's EBITDA for 2025 could increase by around $160 million, leading to a projected 2025 EBITDA of approximately $460 million. This implies a market capitalization of $1.5 billion, making the stock relatively expensive compared to peers like Hudbay Minerals (HBM). However, Ero's exploration upside, particularly with the Tucuma Project and its potential to deliver significant growth in a favorable copper price environment, adds an element of high-risk, high-reward to the investment thesis.

Ero's mix of copper and gold production, along with its exploration upside, provides diversification that shields the company from copper price fluctuations. The recent decline in the stock price, along with the improved balance sheet, makes Ero a more attractive investment opportunity now than it was six months ago. With copper's long-term fundamentals still solid, driven by increasing demand and constrained supply, Ero is positioned to benefit from this broader market trend.

Ero Copper Corp (ERO) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. However, 14 hedge fund portfolios held ERO at the end of the third quarter, up from 11 in the previous quarter. While we acknowledge the risk and potential of ERO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns within a shorter timeframe. If you are looking for an AI stock that is more promising than ERO but trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

In conclusion, Ero Copper Corp (ERO) stands out as a compelling investment opportunity in the copper stocks sector, with its exploration-focused model, growth potential, and diversified production mix. Despite its current challenges, including price volatility and ongoing investment in exploration, Ero's prospects remain appealing, making it a reasonable buy for investors seeking exposure to both copper and gold.