Vale's Growth Prospects Bright Despite Macroeconomic Risks

We issued an updated research report on premium industrial metals and minerals company, Vale S.A. VALE, on Apr 19, 2016.

The company is currently the largest exporter and importer of iron ore and pellets in the global mining market. Since 1942, the company has significantly improved the scale of its business on the back of tactical strategies. However, Vale has been encountering certain headwinds in its business growth, of late.

Scopes for Improvement

Increasing global industrialization has been raising the demand for raw materials. Economic recovery in the U.S. has been driving the demand for iron, copper and aluminum in the market. This is expected to support Vale’s top-line growth in the long run. Moreover, the company is trying to reduce its debt burden through strategic disinvestment programs. We also expect Vale to report higher margins in the quarters ahead on the back of initiatives to enhance productivity, specialized cost-saving plans and new organic growth projects.  

Problems to Consider

Unfavorable commodity pricing continues to affect the Zacks Rank #3 (Hold) stock’s revenues. Decline in the price of some of the company’s major products like iron ore, copper and bauxite is a concern. Further, stiff competition might result in Vale losing some of its market share. This might force the company to lower commodity prices further, which in turn, will affect its top line.

Moreover, the current macroeconomic situation poses several challenges for the mining industry. Economic slowdown in several emerging markets, weakening demand from China, volatility in financial markets, and uncertainty in the energy space are expected to hurt Vale’s performance.

Stocks to Consider

Some better-ranked stocks within the industry include Kumba Iron Ore Ltd. KIROY, Anglo American Platinum Ltd. AGPPY and General Moly, Inc. GMO. All the three companies presently hold a Zacks Rank #2 (Buy).

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KUMBA IRON ORE (KIROY): Free Stock Analysis Report
 
VALE SA (VALE): Free Stock Analysis Report
 
GENERAL MOLY IN (GMO): Free Stock Analysis Report
 
ANGLO AMER PLAT (AGPPY): Free Stock Analysis Report
 
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Zacks Investment Research
VALE Research -- Mutual Funds Top 10 Holdings include "VALE"
KIROY Research -- Mutual Funds Top 10 Holdings include "KIROY"
AGPPY Research -- Mutual Funds Top 10 Holdings include "AGPPY"
GMO Research -- Mutual Funds Top 10 Holdings include "GMO"