Vale Stock: Is It a Good Buy?

Heavy train loaded with brown hematite iron ore in orange freight wagons (cars) passes through rolling hills.
BeyondImages / Getty Images/iStockphoto

When iron ore prices were at all-time highs earlier this year, Brazilian multinational Vale S.A. (VALE) saw annual sales in its metals and mining segments skyrocket to nearly $37.6 billion, outperforming several of its rivals. But with ore prices significantly below their May highs, it’s important to take a closer look at Vale before you invest.

Vale, which was founded in 1942 in Rio de Janeiro, is one of the largest global producers of iron ore and nickel, operating in the ferrous minerals, coal and base metals segments. Nickel extraction and processing of byproducts is overseen by Vale’s base metals division. Its ferrous minerals segment, which also handles logistics, produces iron ore pellets and extracts iron ore, manganese and other products containing iron.

With demand for iron ore expected to increase as demand for steel increases through 2022, is Vale stock a good buy right now? Let’s take a closer look at this company and the current trends shaping the commodities industry.

Iron Ore Is a Hot Commodity

Iron ore is an essential component of steel production, but the extraction process impacts the environment. Stricter environmental regulations on mining have led to fewer companies producing iron ore. Because of this, demand has sometimes outpaced supply, as was the case in 2021, causing iron ore prices to drop.

Building Wealth

Companies in the commodities industry — especially those that produce iron ore, gold and nickel — typically offer protection against inflation. These stocks are usually resistant to fluctuations that come with inflation and are seen as less volatile, which makes them a great way to diversify an investment portfolio to lessen the portfolio’s overall risk.

Many investors have been eyeing a bounce in commodities, considering the sector poised to make a comeback in the stock market as inflation looms. The spike began in the spring of 2020 when the price of copper, iron ore and soybeans began to steadily increase due in part to a buying spree by China. However, China has reduced steel production, causing iron prices to fall, and some analysts say China’s production will remain lower through 2022 before rebounding in 2023 and 2024, according to S&P Global Market Intelligence.

Why VALE Is a Stock To Watch

Vale stock has been on the upswing since November 2021 and is currently ranked fifth in its industry and sector in terms of year-to-date performance. Shares are up 27.10% since the beginning of the year and 6.35% compared to last year. The basic materials sector and metals industry performances are improving, with the industry ranking in the top 1% and the sector ranking in the top 31%, according to Zacks Investment Research. 

Vale’s fourth-quarter 2021 earnings beat analysts’ estimates. Net income reached $5.4 billion, up $1.5 billion from the previous quarter and nearly doubling year over year, according to Reuters. The gains were driven primarily by the impact of a reclassification of cumulative foreign exchange gains. Although expenses were also up and the company acknowledged an impact from 2021’s lower iron ore prices, Vale expects demand to increase, especially for metals used to produce electric vehicles, Reuters reported. 

Building Wealth

Investors should be prepared for Vale to remain volatile for some time, but the stock may be undervalued and could potentially go up in the future.

Good To Know

Vale bought back approximately 21 million ordinary shares, worth $264 million, last quarter, which could increase the share price.

Other Factors Influencing Vale

Companies that plan for the future tend to be less risky than those that stick to business as usual. Vale has shown that it’s dedicated to changing the mining industry, regularly implementing practices that enhance sustainability. It also is increasing production capacity by as much as 30% with new plants.

Because Vale operates in three different segments of metals and mining, its offerings are diversified, which lessens risk. The company also understands the environmental regulations and restrictions that are impacting the mining industry and appears to be taking steps to minimize its impact by, for example, using energy-efficient, wind-powered ships that operate with rotating sails.

With nearly 80 years in operation, Vale has proven adaptable, signaling that it will likely be around for a long time. Stable companies may not offer the highest stock returns, but they do serve as reliable investments for a lower-risk portfolio.

Analyst Ratings

Analyst consensus ratings call VALE a buy, with 10 of 24 analysts reported by Yahoo Finance rating it a “strong buy” or “buy,” 12 rating it a “hold” and two rating it “underperform.” The average price target is $18.70, down from $19.02 in November 2021. The stock closed at $17.82 on Feb. 25.

Key Takeaway

If you are interested in commodities, now is a good time to get into the market. The economy is experiencing significant inflation, which is favorable to commodities and could make Vale a good buy. However, Russia’s invasion of Ukraine has led to speculation in nickel prices and could influence the price of iron ore pellets, Reuters reported, possibly triggering volatility in Vale’s share price.

FAQ

What are commodities?

Commodities are natural resources that are typically used as raw materials to manufacture goods. They can also be bought or sold as tangible goods. Metals, mineral ores, fossil fuels and agricultural products are a few examples of commodities.

How do you trade commodities?

There are different ways to trade commodities. You can buy commodity futures, which are contracts to buy a certain amount of the commodity at a specific price on a specific date. This method can be illustrated by oil and gas, in which people buy futures based on the expected price per barrel.

You can also buy the physical commodity, which is common for items like gems and precious metals, including gold. If you choose to buy the physical commodity, you need to store it, and you need to find a buyer for the physical asset when it’s time to sell. It usually costs more to sell physical commodities than it does to sell stocks or futures.

Finally, you can buy stock in a company that extracts and manufactures the commodity. Buying stock in Vale is an example of commodities trading. If you’re interested in trading but want an asset that is less risky than an individual stock, you can invest in a mutual fund that focuses on commodities. These funds are more diverse than individual stocks, so their prices and returns are typically more stable.

Daria Uhlig contributed to the reporting for this article.

Data is accurate as of Feb. 28, 2022, and subject to change.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

About the Author

Alaina Brandenburger is a freelance writer with 10 years of experience working with a variety of clients. Her areas of specialty include marketing and small business operations, health and wellness, art and design. She has an M.S. in marketing from the University of Colorado Denver and an M.A. in fashion journalism from Academy of Art University.

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