Finding Value in Vale

by Tim Biggam | May 16, 2012 8:00 am

Vale (NYSE:VALE[1]) engages in the exploration, production and sale of basic metals in Brazil and internationally. It’s also involved in fertilizers, logistics and steel businesses. In addition, Vale generates energy through hydroelectric power plants.

While the U.S. equity market has seen a rough patch lately, foreign markets have been beaten up to a much greater degree. One of the worst performers has been Brazil, which is down nearly 10% YTD. Brazil is now trading at a big discount to U.S. stocks on a valuation basis, while still showing much better growth prospects.

Of the Brazilian stocks, Vale has been probably the most unduly punished. The stock is now trading at a price-earnings ratio of less than  6 and sports a very healthy 5.6% dividend yield. Compared to the yield on 30-year U.S. Treasuries of under 3%, Vale certainly looks attractive.

With VALE currently priced under 20 for the first time since 2009, the stock is now trading at a trough valuation. Combined with the high yield, I look for VALE to head back to 22 by September expiration.

Based on Vale’s closing market price of $19.02 for May 15, and using a target price of $22 and a target date of Sept. 21, option strategies to consider include buying a September call spread, selling a September put spread, buying a September call or using another options strategy that best fits your trading style and risk-return objectives.

For the full details on this trade, visit, create a free Instant Login and try the TradeBuilder feature, where you’ll see several ways to trade this name. Best of all, you can see a potential profit-and-loss outline for each strategy.

Create your free login, and get access to the details about these VALE options trading strategies by visiting TradeBuilder here[2].

As of this writing, Tim Biggam does not own any shares mentioned here.

  1. VALE:
  2. get access to the details about these VALE options trading strategies by visiting TradeBuilder here:

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