Vale SA: Is A Bottom In Place?

Jun.13.12 | About: Vale S.A. (VALE)

In the learning to fish series, investors are provided with suggested guidelines for choosing a potential candidate and one candidate is selected as our play of choice. We provide reasons for this choice and in doing so hope to impart some understanding to those who are new to the field of dividend investing. The suggested guidelines can be accessed here "Our suggested guidelines when searching for new investment ideas." These are not absolute rules; they are just suggestions and there are always exceptions to the rule. The goal is to try to satisfy as many of them as possible.

Reasons to be bullish on Vale SA (NYSE:VALE):

  • A good five-year dividend growth rate of 33.7%
  • Profit margins of 32%
  • A good yield of 6.10%
  • A great free cash flow yield of 8.6%
  • A low payout ratio of 36%
  • A great retention ratio of 64%
  • A 5 year ROE average of 32.7%
  • A good current ratio of 2.09
  • A decent quick ratio of 1.49
  • A good interest coverage ratio of 12.3
  • A 5 year sales growth rate of 18.8%
  • Operating cash flow of 1$8.1 billion
  • Operating margins of 46%
  • An excellent long-term debt to equity ratio of 0.38
  • $100K invested for 10 years would have grown to $968K

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Company: Vale SA

Levered Free Cash Flow = -423.03M

Brief Overview

  1. Relative Strength 52 weeks = 25
  2. Cash Flow 5-year Average = 4.11
  3. Profit Margin = 32.99%
  4. Operating Margin = 46.79%
  5. Quarterly Revenue Growth = -11%
  6. Quarterly Earnings Growth = -40.5%
  7. Operating Cash Flow = 18.39B
  8. Beta = 1.75

Growth

  1. Net Income ($mil) 12/2011 = 22885
  2. Net Income ($mil) 12/2010 = 17453
  3. Net Income ($mil) 12/2009 = 5456
  4. Net Income Reported Quarterly ($mil) = 3827
  5. EBITDA ($mil) 12/2011 = 30921
  6. EBITDA ($mil) 12/2010 = 23574
  7. EBITDA ($mil) 12/2009 = 9845
  8. Cash Flow ($/share) 12/2011 = 8.19
  9. Cash Flow ($/share) 12/2010 = 6.35
  10. Cash Flow ($/share) 12/2009 = 1.67
  11. Sales ($mil) 12/2011 = 58990
  12. Sales ($mil) 12/2010 = 45293
  13. Sales ($mil) 12/2009 = 23311
  14. Annual EPS before NRI 12/2007 = 2.42
  15. Annual EPS before NRI 12/2008 = 2.71
  16. Annual EPS before NRI 12/2009 = 1
  17. Annual EPS before NRI 12/2010 = 3.25
  18. Annual EPS before NRI 12/2011 = 4.16

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Dividend history

  1. Dividend Yield = 6.10
  2. Dividend Yield 5 Year Average = 1.5
  3. Dividend 5 year Growth = 33.7

Dividend sustainability

  1. Payout Ratio = 0.36
  2. Payout Ratio 5 Year Average = 0.05

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 1
  2. ROE 5 Year Average 12/2012 = 32.76
  3. Current Ratio = 2.09
  4. Current Ratio 5 Year Average = 2.24
  5. Quick Ratio = 1.49
  6. Cash Ratio = 0.75
  7. Interest Coverage = 12.3

Interesting companies

For investors looking for other ideas detailed data has been provided on two additional companies. Our latest article could provide additional ideas Sirius XM: Fetch Yourself A 20% Yield In 8 Months Or a lower entry price.

Company: Exelon Corp (NYSE:EXC)

Basic Key ratios

  1. Relative Strength 52 weeks = 54
  2. Cash Flow 5 -year Average = 7.72

Growth

  1. Net Income ($mil) 12/2011 = 2495
  2. Net Income ($mil) 12/2010 = 2563
  3. Net Income ($mil) 12/2009 = 2707
  4. EBITDA ($mil) 12/2011 = 6982
  5. EBITDA ($mil) 12/2010 = 7981
  6. EBITDA ($mil) 12/2009 = 7751
  7. Cash Flow ($/share) 12/2011 = 7.64
  8. Cash Flow ($/share) 12/2010 = 8.42
  9. Cash Flow ($/share) 12/2009 = 8.07
  10. Sales ($mil) 12/2011 = 19184
  11. Sales ($mil) 12/2010 = 18644
  12. Sales ($mil) 12/2009 = 17318
  13. Annual EPS before NRI 12/2007 = 4.31
  14. Annual EPS before NRI 12/2008 = 4.17
  15. Annual EPS before NRI 12/2009 = 4.12
  16. Annual EPS before NRI 12/2010 = 3.95
  17. Annual EPS before NRI 12/2011 = 4.16

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Dividend history

  1. Dividend Yield = 4.00
  2. Dividend Yield 5 Year Average = 4.00
  3. Dividend 5 year Growth = 4.96

Dividend sustainability

  1. Payout Ratio = 0.74
  2. Payout Ratio 5 Year Average = 0.49

Performance

  1. ROE 5 Year Average = 23.37
  2. Current Ratio = 1.3
  3. Current Ratio 5 Year Average = 1.2
  4. Quick Ratio = 0.6
  5. Cash Ratio = 0.4
  6. Interest Coverage Quarterly = 82.9

Company: Anadarko Petrol (NYSE:APC)

Growth

  1. Net Income ($mil) 12/2011 = -2649
  2. Net Income ($mil) 12/2010 = 761
  3. Net Income ($mil) 12/2009 = -135
  4. EBITDA ($mil) 12/2011 = 1245
  5. EBITDA ($mil) 12/2010 = 6210
  6. EBITDA ($mil) 12/2009 = 4126
  7. Cash Flow ($/share) 12/2011 = 11.07
  8. Cash Flow ($/share) 12/2010 = 9.32
  9. Cash Flow ($/share) 12/2009 = 6.25
  10. Sales ($mil) 12/2011 = 13967
  11. Sales ($mil) 12/2010 = 10984
  12. Sales ($mil) 12/2009 = 9000
  13. Annual EPS before NRI 12/2007 = 8.34
  14. Annual EPS before NRI 12/2008 = 6.92
  15. Annual EPS before NRI 12/2009 = -0.96
  16. Annual EPS before NRI 12/2010 = 1.81
  17. Annual EPS before NRI 12/2011 = 3.38

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Dividend history

  1. Dividend Yield = 0.60
  2. Dividend Yield 5 Year Average = 0.60

Dividend sustainability

  1. Payout Ratio = 0.11
  2. Payout Ratio 5 Year Average 12/2011 = 0.2

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 27.15
  2. ROE 5 Year Average = 6.93
  3. Return on Investment = 4.94
  4. Current Ratio = 1.8
  5. Current Ratio 5 Year Average = 1.25
  6. Quick Ratio = 1.3
  7. Cash Ratio = 0.75
  8. Interest Coverage Quarterly = N/A
  9. Long term debt to equity = 0.76
  10. Retention ratio = 89%

Conclusion

The stock appears to be putting in a bottom, and as long as it does not close below 17.50 on a weekly basis the bottoming process will remain intact. A weekly close above 22.00 will turn the outlook to bullish. Consider waiting for a retest of the 17.90-18.00 ranges before deploying money. Another option would be to deploy some money at the current price, then a bit more on a re test of the lows and then one final lot when it closes above 22.00.

Another great way to get into a stock at a price of your choosing is to sell puts at strikes you would not mind owning the stock at. Investors willing to take on a bit more risk might find this article to be of interest Alpha Natural Resources Vs. Arch Coal: Is There A Clear winner?

EPS and Price Vs industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Consensus estimate analysis table sourced from reuters.com. Ycharts data sourced from ycharts.com. Growth and earnings estimates sourced from dailyfinance.com

Disclosure:

I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: EPS and Price Vs industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Consensus estimate analysis table sourced from reuters.com. Ycharts data sourced from ycharts.com. Growth and earnings estimates sourced from dailyfinance.com

Disclaimer: This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware