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Vale S.A. (VALE) Downgraded to Hold on Industry Headwinds

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On Mar 27, Zacks Investment Research downgraded Vale S.A. (VALE - Free Report) to a Zacks Rank #3 (Hold) from a Zacks Rank #2 (Buy). Going by the Zacks model, companies holding a Zacks Rank #3 have strong chances of performing in line with the broader equity market.

Why the Downside?

Over the last one month, Vale’s shares recorded a loss of 10.24%, wider than the loss of 1.46% recorded by the Zacks categorized Basic Materials sector.

Vale’s commercial affairs depend on licenses and permits issued by the government. Changes in government policies might lead to situations where licenses are not renewed at all. Such circumstances adversely affect the company’s growth or productivity plans, thereby hurting its revenues and margins.

Moreover, Vale is exposed to intense competition in the mining market. Extensive competition exposes the company to risks of market share loss. Also, market rivalry forces the company to undertake price-cutting programs, which, in turn, hurts the total revenue. Furthermore, miscellaneous issues such as natural disasters, abnormal rainfall and shortage of skilled workers, continue to threaten the company’s performance.

However, we deem that this Zacks Rank #3 stock still has enough impetus to offset the impact of the aforementioned headwinds. Notably, over the last seven days, the Zacks Consensus Estimate for the stock moved north for 2017, reflecting positive market sentiments.

Improving prices of core metals such as pellets, iron ore fines, nickel, copper and coal are currently driving Vale’s top-line performance. The company’s profitability has been improving on the back of higher revenues and lower costs. Vale is strategically lowering its exploration and mining expenses by maximizing the productivity of major mines.

The company is also improving its mining productivity on grounds of superior grades, sound ramp-up activities of new mines and greater operational discipline. Moreover, efficient disinvestment programs and suitable capital-deployment strategies are expected to stabilize the company’s debt level in the quarters ahead.

Stocks to Consider

Some better-ranked stocks in the industry are listed below:

Amerigo Resources Ltd. (ARREF - Free Report) has an average earnings surprise of 12.50% for the past four quarters and currently boasts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Albemarle Corporation (ALB - Free Report) carries a Zacks Rank #2 at present and has a positive average earnings surprise of 14.28% for the last four quarters.

Arconic Inc. also holds a Zacks Rank #2 and has a remarkable positive average earnings surprise of 79.97% for the trailing four quarters.

Zacks' Top 10 Stocks for 2017

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See More Zacks Research for These Tickers


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VALE S.A. (VALE) - free report >>

Albemarle Corporation (ALB) - free report >>

Amerigo Resources Ltd. (ARREF) - free report >>

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