What Makes Vale Stock Attractive Even After A 70% Rally?

by Trefis Team
+32.74%
Upside
15.38
Market
20.42
Trefis
VALE
Vale
Rate   |   votes   |   Share

Vale stock (NYSE: VALE) has seen an impressive rise of 70% in the last six months (126 trading days) and is currently trading at $19 per share. The sharp rally was driven by a recovery in global iron ore prices. Iron ore price per ton currently stands at $171, which reflects an increase of more than 40% in the last six months and more than double in the last one year. Additionally, the lifting of lockdowns over recent months and successful vaccine rollout has led to expectations of healthy growth in shipments in 2021 as demand gets back on track and supply constraints are reduced. The recent increase in Covid cases is one risk that the company faces, as reimposition of lockdowns will delay the recovery process in revenues and earnings. So, after the recent rally will Vale’s stock continue its upward trajectory over the coming weeks, or is a correction in the stock more likely?

According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price data for the last ten years, returns for VALE stock average close to 6% in the next three-month (63 trading days) period after experiencing a 70% rise over the previous six-month (126 trading days) period. Notably, the stock is likely to outperform the S&P500 over the next three months, with an expected return which would be 3% higher compared to the S&P500.

But how would these numbers change if you are interested in holding VALE stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning to test VALE stock chances of a rise after a fall and vice versa. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

MACHINE LEARNING ENGINE – try it yourself:

IF VALE stock moved by -5% over 5 trading days, THEN over the next 21 trading days, VALE stock moves an average of 1.1 percent, which implies a return which is almost similar to that of the S&P500.

More importantly, there is 47% probability of a positive return over the next 21 trading days and 41% probability of a positive excess return after a -5% change over five trading days.

Some Fun Scenarios, FAQs & Making Sense of VALE Stock Movements:

Question 1: Is the average return for VALE stock higher after a drop?

Answer:

Consider two situations,

Case 1: VALE stock drops by -5% or more in a week

Case 2: VALE stock rises by 5% or more in a week

Is the average return for VALE stock higher over the subsequent month after Case 1 or Case 2?

VALE stock fares better after Case 2, with an average return of 1.2% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 1.6% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how VALE stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold VALE stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For VALE stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

Question 3: What about the average return after a rise if you wait for a while?

Answer:

The average return after a rise is generally lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks.

VALE’s returns over the next N days after a 5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for VALE stock by changing the inputs in the charts above.

While VALE stock may have moved a lot, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Compass Minerals vs Southwest Gas shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

 

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!