Vale S.A.: This Global Mining Giant Is Overdue For A Nice Bounce

Jun.18.12 | About: Vale S.A. (VALE)

My portfolio consists mainly of blue chip companies like Microsoft (NASDAQ:MSFT) with low valuations and solid dividends, high yielding REITs like Chatham Lodging Trust (NYSE:CLDT) as well as energy MLP's, a few short positions via options like LinkedIn (NYSE:LNKD), numerous small speculative positions and 30% cash at the moment. I also do some trading on stocks that have gotten way undervalued and have hit some strong fundamental and technical support levels. One stock that I have successfully been in and out several times in the last year is Vale S.A. (NYSE:VALE). It is approaching a level that it should bounce off from and I will look to the next down day to pick up the shares.

Why I think Vale is bottoming:

  • It was added to Citigroup's Top Picks this morning.
  • The stock is yielding close to 6% which should put a significant floor under its shares.
  • The stock looks like it is going through a bottoming process (see chart).

Click to enlarge
(Click to enlarge)

4 reasons VALE seem significantly undervalued at just $19 a share:

  • VALE is selling at the very bottom of its five year valuation range based on P/S, P/E, P/CF and P/B.
  • The stock is extremely cheap at just over five times forward earnings.
  • The company more than tripled operating cash flow from FY2009 to FY2011 and is selling for approximately 4 times OCF.
  • The stock is some 50% below the median analysts' price target of $29 a share held by the twenty analysts that cover the stock.

Disclosure: I am long CLDT, MSFT. Short LNKD and may initiate long position in VALE in next 72 hours