Vale S.A. (VALE) is a big, global play on the resurgence of commodity prices in general and iron ore in particular, explains Mike Cintolo, editor of Cabot Top Ten Trader.
With seaborne iron ore prices up sharply, producers are back in the spotlight thanks to China's insatiable thirst for the industrial metal (which is a key input into steel) and supply constraints in top producer Brazil.
One of Brazil's biggest companies is Vale, a diversified producer of industrial and precious metals and the world's second-largest iron ore and nickel producer.
Through its subsidiaries, it also operates ships, railroads and hydroelectricity plants, but the stock usually gets pushed/pulled based on changing perceptions of commodity prices.
On that note, Vale sent shockwaves through the market recently when it lowered iron ore production guidance for a second time this year, underscoring the tight supply situation (and supporting prices).
The company also said it expects copper and nickel production growth next year (and longer-term, too) as prices for both commodities are on the rise. But it's iron ore that's the main reason for the stock's strength (it accounts for 85% of its revenues), as it's driving positive results despite the pandemic.
The firm's Q3 per-share earnings were a solid 57 cents (up from a loss a year ago) while revenue was 5% higher, driven by improved mining output and higher prices.
Vale's higher earnings and cash flow have allowed it to deleverage (paid off $5 billion of its credit lines in September alone) and to reinstate variable dividends.
The company paid 27 cents per share in September, and there should be more where that came from with analysts expecting earnings of $1.79 per share this year and nearly $2.50 next.
VALE looks like a lot of commodity stocks: There was a multi-year decline/dead period that culminated with the crash in March of this year, followed by a good-not-great rebound for a few months and a quiet sideways consolidation for a while after that.
And now the buyers are back — VALE has mushroomed to multi-year highs on three straight weeks of huge, accelerating volume. Any dip should prove buyable, but use a loose leash.
