VALE trade ideas
Giant double-bottom forming in VALE- Vale jumps today from level of previous low despite weak Chinese PMI data (on the heels of oil break out).
- Name heavily oversold on Chinese fears, plummeting iron ore prices, Brazil uncertainties, etc., selling might be overdone.
- Deeply undervalued even with depressed circumstances taken into account.
- High risk idea as many part of the equation of Vale is still very vulnerable, but promises reasonable profit potential.
- Double bottom is only confirmed when price breaks through neckline around 8.6-8.7. First stop might be there as well, possible break out then might bring it above 10.
Long Vale into 10/17/14 Ex-DivHistorical trends from the past 2 years shows heavy buying with a ~10-15% run in Vale heading into Ex-Div. The stock price is trading around a multi-year low in the low $12s. It has tested this level and traded higher with strong support multiple times (Jul13, Jan14, Mar14, Jun14). At a current price of ~$12.4 the yield on the semi-annual 10/17/14 dividend will be roughly +3.3%. Fundamentally Vale is trading at a depressed multiple with a iron ore trading at a 5-Yr low. Morgan Stanley forecasts a rally in the final quarter which follows a similar prediction last week from Vale (VALE +0.8%), the world’s largest supplier, which said prices may be poised for a rebound to as much as $100/ton by year-end because of declining inventory at ports (seekingalpha.com).
Update 9/15: Vale announces partnership with Cosco which will lead to lower shipping and overall costs in China. For two years, Vale SA's Valemax mega-ships - designed to cut the costs of transporting iron ore to China - have not been allowed to dock at Chinese ports, stalling the miner's $4 billion strategy. But the argument is now moot because Vale on Friday announced a deal with Cosco, and analysts forecast the Valemax ships will soon be docking in China. If they are right, it will mark a long-awaited breakthrough for Vale, allowing it to better compete with Australian rivals BHP Billiton Ltd and Rio Tinto Ltd (mobile.reuters.com)
Update 9/16: Vale to Benefit From Tax Credit Given by Brazil’s Mantega. The government will give a tax credit of 9 percent of earnings abroad to all Brazilian industrial companies, including miners such as Vale SA. (www.bloomberg.com)
***Investing/trading in Vale since 2013. Entered new long position at $12.6 and accumulated through the low of $12.10. Expecting to close the position in a couple weeks between $13.5 - $14. I might look to short Vale heading into earnings on 10/30 if between $14 - $14.5 in the middle of October. Short trade would be based on historical trend following the dividend payout/heading into ER, as well as the faster than anticipated decline in iron ore price this quarter.***
Bullish Gartley Pattern + Rsi Bullish DivergenceBullish Gartley Pattern + Rsi Bullish Divergence.
I Always set my TAKE PROFIT at the min profit on these trade ideas. OF COURSE YOU COULD TAKE THEM FURTHER THAN THAT. Many different trade management strategies could be used. Do i stick to the min PROFIT TARGET on my personal trades, mostly not!!!!!!! BAMM Trades Should Be Traded No Further Than The Completion Point Of The Pattern In Question.......
Long term value investmentVALE should be valued between $18 and $25 dollars. Standard & Poors seem to hit it right on the head with a price target of $22. The company has a strong competitive advantage versus peers, however lacks diversification compared to the industry leader, BHP.
The market has priced in multiple risks associated with VALE:
Taxation: Corporate taxes are 34%, with double taxation on outside factors.
Emerging Market: VALE is located in Brazil, and is therefore is a target of bias. Inflation remains around 5-6%.
Volatility: EPS and revenues are volatile due to supply/demand of commodities, and overall pricing (i.e. China). However iron ore prices are unlikely to drop below $90 for an extended period of time.
Summary: VALE will continue to remain an industry leader. Their break-even for iron ore is $75 against the $100+ price. I created a position at $12.40 (50k) on Friday and will grow my position provided the broader market experiences enhanced selling or a correction. Short term fears could also drop their market cap closer to $60 billion, which would be a steal. Price target of $18 min, $24 max (time interval is 1-2 years).
Deep value play with VALEHigh 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.
