What’s Next For Vale Stock After Its 28% Rally?

by Trefis Team
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Vale stock (NYSE: VALE) has seen an impressive rise of 28% over the last six months and currently trades at $22 per share. The sharp rally was driven by a sharp recovery in global iron ore prices. Iron ore price per ton crossed $200 in May 2021 and currently (as on 26th July 2021) stands at $216, which reflects an increase of 27% in the last six months and 80% in the last one year. The rise in prices is largely because supply has not been able to keep pace with demand in China, where crude steel production has grown by 30% over the past five years. China’s push for reducing carbon emissions from its steel industry has led to premium pricing of high-grade iron ore. Additionally, the lifting of lockdowns over recent months and successful vaccine rollout has led to expectations of healthy growth in Vale’s iron ore shipments in 2021 as demand gets back on track and supply constraints are reduced. Also, September 2021 iron ore futures for 62% Fe content has gone up over $222 per ton. Futures are stronger as currently the market has a relatively strong expectation on further easing of production restrictions.

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 5.5% in the next one-month (21 trading days) period after experiencing a 28% rise over the previous six-month (126 trading days) period. The stock has more than 61% probability of rising over the next one month. 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 five trading days, THEN over the next 21 trading days, VALE stock moves an average of 1.2 percent, with a 47% probability of a positive return.

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 1.9% 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 5 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 understandably 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 5 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

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