The market's recent rise has bid-up many growth stocks, but bargains still exist, and Companhia Vale do Rio Doce (NASDAQ: VALE) is one.
Wall Street punished Brazil-based iron ore and pellet producer Companhia Vale do Rio Doce, or simply Vale, as it became clear international demand for steel would decline with the onset of the global recession, taking shares down from the $44-range to about $9.
Did Wall Street overdo it on the downside? Of course, all but ignoring the fact the Vale is also the world's second largest producer of bauxite, alumina, and primary aluminum.
Still, even though global steel demand is likely to remain challenged through F2009, the view from here argues Vale is a get-ahead-of-the-pack play for moderate-risk investors. Any sign of strengthening steel demand in China/Asia will prompt institutional investors to add to VALE positions; moreover, Vale's p/e of 13 is reasonable. The First Call F2009/F2010 EPS estimates for VALE are $1.03/$1.35.
Vale's risks are obvious enough: a failure of the global economy to recover in the second half of 2009 will likely send the company's shares back toward $10 again. Hence, Vale is not a stock for those who can not tolerate a pullback of 30% or more.
Stock Analysis: Companhia Vale do Rio Doce is moderate-risk stock. Consider buying a 25% position in VALE now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your VALE position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $8.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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