Long term value investment
VALE 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).
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).
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