Vale Stock: Is It a Good Buy?
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 63% 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.
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 is currently underperforming its competitors in the industrial metals and mining industry and is currently 26th out of 33 stocks in terms of year-to-date performance. Shares are up 6.47% from last year, but they’re down nearly 26% since the beginning of 2021. However, the basic materials sector and metals industry are performing poorly overall, with the sector ranked in the bottom 6% by Zacks and the industry ranked in the bottom 1% based on the performance of stocks within those groups.
That said, Vale’s third-quarter 2021 earnings beat analysts’ estimates and were up 38% compared to last quarter, according to Zacks. The gain was driven primarily by the company’s ferrous minerals business, thanks to higher volumes and increasing iron ore prices. However, the company’s earnings per share are expected to decline through 2025, according to analyst Nikolaos Sismanis, writing for TipRanks.
Although investors should be prepared for Vale to remain volatile for some time, the stock may be undervalued and could potentially go up in the future.
Good To Know
Vale is gearing up to buy back up to 4.1% of outstanding shares, 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 consensus ratings call VALE a hold, with 12 of 24 analysts reported by Yahoo Finance rating it a “hold,” 10 rating it a “buy” or “strong buy” and two rating it “underperform.” The average price target is $19.02, which is over 54% higher than the most recent closing price of $12.33.
Given the volatile price and mixed views, you might want to consider holding off on buying shares of VALE right now.
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.
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 Nov. 16, 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.
- S&P Global Market Intelligence. 2021. "Souring iron ore outlook set to persist into 2022."
- Zacks. 2021. "Vale (VALE) Q3 Earnings Surpass Estimates, Revenues Miss."