I guess this blog is not the only one bearish on VALE (see our June post here). Jim Van Meerten makes his case for staying out of this commodity giant.

“One of the most hyped stocks in the past year has been the Brazilian natural resources conglomerate Vale SA (VALE), traded as an ADR here in the U.S. Most pundits have pointed to the BRICs forecasts and noted that China and Brazil had the best growth prospects, and since Vale was in Brazil and sent its raw materials to China, this investment would be a no brainer. Well I keep looking at the numbers and they don’t seem to stack up for me.”
“Fundamental factors to consider:

  • Sales are expected to increase by 36.50% this year but only by another 3.30% next year.
  • Earnings are expected to grow by 61% this year but decline by 4.8% next year and only increase at the annual rate of 4.04% annually of the next five years.
  • Why do brokerage analysts have five strong buy, 12 buy, five hold and no under perform recommendations on a stock that is expected to have annual increases of sales and earnings going forward of less than 5%?
  • This is a China/Brazil play but recently analysts downgraded their China GDP growth rate from the mid 9.5% to around 8.3%, and Brazil’s GDP growth rate was similarly downgraded from around 4.2% to 3.9%.
  • The only number I can find that I like is that Vale’s P/E ratio is 5.31 in an industry where 11.37 is the norm.”
And here we rest our case. Somebody smarter than us pointed out in details the bearish case for the company. Our view is that commodities will keep plunging for the next year (China slowdown, weaker demand, higher supply), thus VALE’s stock will obviously suffer.

Full article here.

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