Vale Stock (VALE): 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

With iron ore prices at an all-time high, Brazilian multinational Vale S.A. (VALE) has seen annual sales in its metals and mining segments skyrocket to nearly $37.6 billion during the past year, outperforming several of its rivals.

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 iron ore in high demand and a significant bounce anticipated for the overall commodities industry, is VALE a good stock 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, current demand is much higher than the supply, causing iron ore futures to surge by more than 10% recently.

Building Wealth

Soaring demand has made mining companies that specialize in the extraction and processing of iron ore, like Vale, hot investments.

Aside from rising demand, 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 not only diversify an investment portfolio but lessen the portfolio’s overall risk.

Many investors have been eyeing a bounce in commodities since late last year, 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.

Why VALE Is a Stock To Watch

VALE is currently outperforming its competitors in the basic metals sector. The company has shown 35% higher returns this year, and it seems to be doing better with its earnings. By comparison, other stocks in the basic metals sector have seen increases of about 28% on average.

VALE’s annual sales were nearly $37.6 billion last year, and its cash flow per share was around $2.76. This indicates that the stock may be undervalued and could potentially go up in the future. In early May 2021, shares of VALE were up by more than 4%.

Good To Know

Cash flow per share of under $5 might indicate that the stock is currently undervalued and is poised to go up in the future.

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.

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.

Building Wealth

With nearly 80 years in operation, Vale has proven to be very 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 low-risk portfolio.

Analyst Ratings

In recent months, Vale’s stock has been gradually rising, and the company has offered several indications of stable and positive future performance. During the past three months, VALE stock has jumped nearly 18%, increasing from $18.30 to $21.59.

Despite the recent jump in stock price, not all analysts agree that VALE stock is a good investment right now, with several viewing it as overweight.

Given the rising price and mixed views, you might want to consider holding off on buying shares of VALE right now.

Key Takeaway

If you are interested in commodities, now is a good time to get into the market. Financial experts are predicting inflation in the future, which is favorable to commodities. VALE is a stable company with steady returns, which makes it a good buy.

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 is a contract 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 the 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.

Data is accurate as of May 18, 2021, 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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