Skull_Trader1

Deep value play with VALE

Long
NYSE:VALE   VALE S.A.
1
High capex is covering up current free cash flow, therefore the 6% dividend yield is safe for yield-seekers. The company has also beat top line analyst estimates for the year by a decent margin, as well as the bottom line. In the last ER, they missed on EPS due to continued increased expenses (via expansion projects), where we saw a dip in share price (likely corresponding to continued short term nervousness). Iron ore prices have stayed between $100-185 for the last 4 years, and should not plummet significantly as the global economy continues to recover. Analysts, however, are concerned about slowing infrastructure, but GS contends that construction will stabilize, especially in China (VALE's primary source of revenue). Brazil taxation issues are also being settled, and losses are finally being cleared out of the way. With that said, VALE should reflect stronger earnings power going forward and this comparative industry discount gap should close relatively soon. MS and JPM have also boosted their price closer to $17, while Standard & Poors maintains their $22 target. Holding a position at $13, I am issuing a risk/reward of 1:2, with virtually no downside for the long term holder.
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