Tim Biggam, TradingBlock (May 15, 2012, 3:04 pm CDT)
|Symbol||Analyst Target Price||Target Date|
|VALE||22.00||Sept. 21, 2012|
Vale S.A. (ticker: VALE) engages in the exploration, production and sale of basic metals in Brazil and internationally. The company is also involved in fertilizers, logistics, and steel businesses. In addition, Vale generates energy through hydroelectric power plants.
While the US equity market has seen a little 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 US 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 less than a 6 P/E and sports a very healthy 5.6% dividend yield. Compared to the yield on 30-year US Treasuries of under 3%, VALE certainly looks comparatively attractive.
With the stock currently priced under 20 for the first time since 2009, VALE is now trading at a trough valuation. Combined with the high yield, I look for VALE to head back to 22 by September expiration.
Play of the Day
Based on Vale's (ticker: VALE) current market price of $19.02 and using a target price of 22.00, a target date of September 21, 2012 and $1,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date. .
Click on the strategy name below to access trade details using TradeBuilder on TradingBlock.com. Powered by TradingBlock's TradeBuilder.
|Strategy (click for details)||% Return at Target||Probability of breaking
even or better
|Buy Sep Call Spread||+143%||48%|
|Sell Sep Put Spread||+72%||59%|
|Buy Sep Call||+68%||46%|
* Click link to access TradeBuilder details on TradingBlock.com. Must have Instant or Actual account. Subject to change due to changing market conditions. Click here to view risks regarding selling stock short.
DISCLAIMER: This content is provided for educational and informational purposes only. Evaluate any strategy prior to use to understand risk and suitability. TradingBlock does not endorse or warrant any Market Analyst content, service or product. Use this content at your own risk without guarantee or warranty of any kind from TradingBlock. Tim Biggam is a TradingBlock registered representative. He is not compensated by TradingBlock for any market research or analysis services. He currently does not hold any positions in VALE.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.