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VALE Don’t Get No Respect… (VALE)

Posted on January 21, 2021

Global mining giant VALE S.A. (NYSE:VALE) is our spotlight trade this week.

The company’s stock has run higher on the back of huge increases in the price of iron ore of late, the result of new Chinese buying and Batflu-based supply issues.

The metal is now trading at U$170 per ton, up close to 80% this year, her best price in almost a decade, and by far the best performing metal in the commodities pantheon in 2020.

And yet…

The increases appear to have run their course.

Which means the best is already baked in.

Internal Troubles

Vale, whose Brazilian operations have been severely disrupted by the flu – and who just last month was hit by a landslide at her Córrego do Feijão mine, that killed one and temporarily closed the operation – has lowered 2021 output guidance accordingly.

Moreover, the company operated this last year with a net loss of $1.6 billion, and does not expect 2021 to deliver much better.

Fundamentally, the picture’s like this –

  • P/E is 30.03, with analysts expecting a massive earnings deluge in the coming year – though at this stage, we’re not sure from where,
  • Dividend yield, at 3.94%, is STRONG and will support the stock price somewhat going forward, and
  • Price to Book is a bedevilled 2.39.

Earnings has always been the issue with VALE, as they carry little debt and are reliant on situations like the current one to drive overall numbers.  The question is whether the Chinese have done their post-Batflu infrastructure buying and/or whether the rest of the world will ramp up production to account for any surplus demand going forward.

And to both those questions, we answer in the affirmative.

Prices for the miners have topped.

Have a look now at the daily chart for the last half year –

Maximum loss on the trade – should proper STOPs be emplaced – is $0.10.

Maximum gain is unlimited.

Many happy returns,

Matt McAbby

 

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