Monday, November 7, 2011

Vale’s Fundamentals, Dividend and Charts All Scream BUY Now : VALE

Vale (NYSE:VALE), the Brazil stock that focuses on metals and mining, is not exactly a sexy pick right now. If you like materials stocks, most investors typically go for gold or maybe silver. If you like emerging market stocks, most investors are looking to Asia. If you like stocks that feed the industrial sector … well, most investors think you are crazy.

But investors should take notice of Vale right now. The stock is showing tremendous growth over the long term, pays a plump dividend (though an admittedly volatile one that fluctuates quarter to quarter) and could be your best bargain buy in a market that feels painfully overbought.

I recently talked up the prospect of buying Alcoa (NYSE:AA) for similar reasons, citing Alcoa stock as a great bargain buy. But Vale is even more attractive being 10 times the size, paying a bigger dividend and having a footprint in emerging markets.

The short term might be rocky, but here’s why I really think Vale could be a blockbuster investment for the long term:

Metal Prices Firming Up

Yes, industrial demand remains weak. That’s not exactly news to anyone since manufacturing is stagnant amid a global economic downturn and the housing market crash has put a big damper on the needs for plumbing, wiring and other materials that use base metals.

Copper Aluminum
Click to Enlarge
But a look at copper and aluminum price charts hardly show that it is the worst of times. While prices haven’t regained to pre-recession levels — which is no surprise — they have come storming back during the past three years from financial crisis lows.

Consider these charts, which show copper is up almost four times over from its lows, and aluminum is about double 2009 levels. Granted, there has been a softening in the past few months — but the overall trend continues to be up for the long term.

I suppose car sales and home sales will slump even lower than the “new normal,” but frankly, if you believe that, you shouldn’t be investing in any stocks for the long term. The fact is that manufacturing has almost nowhere to go but up if the American economy is going to build a true recovery in the next year or two.

Vale Fundamentals Are Strong

First-quarter revenue in fiscal 2011 almost doubled for Vale, from just shy of $7 billion to $13.8 billion. Second-quarter revenue was up “only” 50%, from $10.3 billion to $15.7 billion.

After a brutal 2009 in which Vale earnings totaled just 99 cents per share on revenue of $24.3 billion, fiscal 2010 boasted earnings of $3.24 and revenue of $47.2 billion. Operating cash flow in 2009 totaled $7.1 billion. In 2010, that number soared to $19.7 billion.

You might think this is all a look in the rear-view mirror, and I’ll admit growth 12 months ago isn’t exactly a huge reason to buy in now. However, it does show the powerful potential of this stock even in a choppy market.

Also, let’s consider that Vale only added 20% from Jan. 1, 2010, to Dec. 31, 2010, while the S&P 500 added almost 15%. One easily could make the case that the market was overlooking Vale and has yet to price in those impressive numbers.

Looking forward, the EPS forecast for fiscal 2011 is $4.68, according to Standard & Poor’s — that’s a 44% leap over fiscal 2010’s $3.24. Revenue is on track to hit almost $62 billion — 30% above the $47.2 billion in the previous year.

Yet Vale has given up all of those 2010 gains and more — it’s down more than 25% year-to-date. That seems a harsh reaction to numbers like these even if baseline demand for aluminum and copper remains disappointing.

Charts Show a ‘Buy’

Click to Enlarge
Lastly, a look at the charts shows that Vale has drifted significantly below both its 50- and 200-day moving averages. Simply moving back to the $30 range where these metrics are tracking would be a 20% gain from current valuations around $25 for VALE stock.

What’s more, a so-called “golden cross” occurred this summer with the August volatility. Many technical analysts believe when a shorter-term moving average moves above the longer-term average, it is a bullish signal.

To top it all off, Vale has a forward P/E under 6 right now, which is less than half that of most S&P 500 stocks.

The icing on the cake is that Vale pays a substantial (if volatile) dividend. Based on its last quarterly payout of 37 cents a share, the company has a yield of almost 6% — though payouts admittedly have fluctuated between as little as 17 cents per quarter to as much as 57 cents in the past year. That means a dividend of 3% on the low end of the spectrum, which still is a pretty good hedge.

Junior Gold Stocks to Watch : TMM, CFM, RMX, SFF, VGO, BRD

Junior gold explorers from British Columbia to Colombia are poised to pounce. And they are not your ordinary explorers. The Ubika Gold 50 Index has uncovered one explorer that also produces; another has a "fully earned option" with Goldcorp. In this exclusive interview with The Gold Report, Vikas Ranjan, managing director and principal, Ubika Research, reveals why these companies make a compelling case for success.

The Gold Report: Vikas, given the recent agreement to shore up banks in the Eurozone with a $1 trillion eurofund, do you still believe the world is on a path to a soft recession?

Vikas Ranjan: I think recent developments tell us that the risks are lower than a couple of weeks ago. The current economic problems, particularly in the Western countries, are more about policy than economics. The Greece debt bailout announcement could mitigate the potential of a hard run on other European countries, and it will have an impact on banks and the financial system in general.

TGR: Gold went up on the news. How do you explain that?

VR: That is a bit of a conundrum. Historically, gold goes up on uncertainty and other things go down. Over the last three to five months, we have seen more harmony; every asset class going up or going down together. The exception is U.S. Treasuries, which seems to be the only asset class people swarm to when things really are murky.

To some extent, gold has become a levered play. There are a lot of derivatives, a lot of exchange-traded fund-based trading in gold. Gold prices are decoupling from the fundamentals of demand and supply, purely from a physical gold perspective. That could explain, from a trading perspective, why things are looking good for asset classes in general; gold is simply one of those asset classes.

TGR: People seem to be exiting bonds for equities. Do you see that trend continuing?

VR: I would say so. There was a lot more pessimism than was warranted in the market in the summer and early fall. People had a panicky reaction. They flocked into U.S. Treasuries. We feel there will be a shift away from bonds and into equities and other riskier assets, such as copper bonds. That will be good for the global economy. (more)

This Is How The Banksters Took Control Of You!

Gerald Celente - 2012 will be the telling Year Gerald Celente on the Alex Jones Show 03 Nov 2011

Trends master Gerald Celente debates with Alex Jones about the continued growing debt problem in Greece and what it will mean for the rest of the world.we have to take down control away from the corrupt bankers , Greece the Cradle of Democracy Robbed by the Bankers, all these people, everyone we are building massive forces AGAINST THE TYRANNY AND TOTAL domination of the .1% crime syndicate, the false idols, false gods system, its a big shift in consciousness to reject the bankers, (except some look like ghouls) a quickening of 'storm the elites' and butcher them in the streets isnt so far fetched, look at the revolutions when times were tough and wealth disparities massive.The IMF has no money to loan. They just give permission to print, or add digits, guaranteed by tax payers coerced loyalty to pay back. Pay back, was was (permission to add digits.).

Italy Moves One Step Closer to the Debt Crisis Endgame

Is there an alternative to monetizing Italy's debt…?

SO THE Italian government today asked the International Monetary Fund to monitor its reform program.

It may or may not be coincidence that the G20 summit, which ended today, saw discussion about boosting global liquidity by the use of Magic Money – otherwise known as the IMF's Special Drawing Rights.

Italy needs a miracle. Its debt dynamics are truly horrible. Take a look, for example, at the recent spike in 12-Month Treasury Bill yields – which are now at pre-crisis levels (i.e. before central banks started putting unprecedented downwards pressure on interest rates):

Italian 12-Month Treasury Bill Yields

Source: Bloomberg

There are rumors that the spike in T-Bill yields last week was a result of a large MF Global position being unwound as the brokerage went bust. That may go some way toward explaining the timing of the spike, but there are good reasons for investors to shy away from short-term Italian debt – and they go beyond the scary headlines we're seeing every day.

Back in July, Italy's Ministry of Economy and Finance made an intriguing move. It cancelled an auction of medium- and longer-dated bonds scheduled for the following month. From now on, it said it would regularly offer 12-month Treasury Bills instead.

According to its Treasury Department, Italy has over €280 billion of debt redemptions coming due over the next 12 months (including this month's debt). That's almost two-thirds of an (unleveraged) EFSF. More than half of this debt is due by the end of March next year.

The average maturity on Italian sovereign debt is around seven years – not too but, but not too great either. Furthermore, as we've seen, Italy plans to issue a lot of new short-term debt – at a time when yields on newly-auctioned debt are hitting Euro-era highs. It won't be long before higher borrowing costs make it impossible for Italy to service its debt.

Small wonder then that the debt markets are taking a long hard look at Italy's debt dynamics. There seems little prospect – short of intervention – that borrowing costs on new Italian debt will fall significantly any time soon.

The European Central Bank is already buying Italian debt on the open market. Will it go that step further and buy it at source – in effect printing money to cover Italy's borrowings and running costs?

Without wishing to put too much emphasis on nationality, it may prove significant that an Italian is now president of the ECB. Mario Draghi has been director general of Italy's Treasury and governor of its central bank.

Weighed against that is that government debt monetization is anathema to the ECB – and what's more, it's prohibited from doing it.

Article 104 of the Treaty on European Union, for example, says this:

'Overdraft facilities or any other type of credit facility with the ECB or with the central banks of the Member States (hereinafter referred to as "national central banks") in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments'

Where there's a European will, though, there's usually a way. Some sort of convoluted arrangement involving the EFSF (or its planned successor, the ESM) perhaps.

An ECB-fuelled solution has seemed a likely endgame for a while now (though there is now the tantalizing prospect of SDRs too). Italy's dire debt problems suggest it may be closer than some people realize.

By Ben Traynor

How to Play Big Oil and Get a 9% Dividend Offshore drilling contractor SeaDrill is an offbeat play: SDRL

High-yield dividend stocks are the focus of many investors right now — and with good reason. As the market makes dramatic moves up and down but fails to make much headway across the longer term, a steady stream of income via reliable dividends is quite attractive.

Big Oil stocks provide a lot of dividend potential — with Exxon Mobil (NYSE:XOM) offering a yield of almost 2.5%, Chevron (NYSE:CVX) with a dividend yield of 3.1% and BP plc (NYSE:BP) yielding almost 3.9% right now. However, all of these stocks are basically flat year-to-date in 2011. Although inflationary trends indeed indicate a rise in oil prices, the soft demand of the global economic downturn means these stocks are pretty much treading water despite throwing off big dividends.

But what if you could play oil prices while tripling your dividend to 9%? Wouldn’t that be a better way to bank on inflation in oil prices? Even if it takes another 12 months for oil stocks to build a significant rally, in this environment, a 9% return on your investment is pretty darn good!

That’s exactly what SeaDrill (NYSE:SDRL) offers. SeaDrill is an offshore drilling contractor serving the oil and gas industries worldwide, specializing in harsh arctic environments and deepwater conditions. The company owns the manpower and ships to tap wells, then turns those wells over to big energy companies. It’s a lucrative business, and SDRL offers a big chunk of its revenue back to shareholders in the form of big dividends.

How big? Last quarter, SDRL shares paid back 75 cents apiece. Annualized to $3 per year (75 times four quarters) and based on current valuations around $33 per share, that’s a whopping 9% dividend yield!

SeaDrill SDRLOf course, the dividend at SeaDrill can fluctuate big-time. A look at the company’s dividend history shows significant gyrations in the payouts. However, on the whole, I think you’ll agree the paydays always are substantial.

If you think the 9% yield based on 75 cents per share isn’t fair, let’s try some different math. How about the last four dividends — totaling $2.83 per share? A yield on that is 8.5% at current SDRL prices. And if you want to be pessimistic, aside from the first SeaDrill dividend, the company always has paid at least 50 cents per share — averaging 63 cents per share for the past 10 quarters (again, excluding that initial payout). Annualized for four quarters, that’s $2.52 — or “only” a 7.6% yield.

And as you can see form the chart above, there is equal chance the next dividend could be even more than 75 cents per share.

Clearly, the dividend potential of SeaDrill is powerful. But what about the fundamentals of the company?

Well, revenue has increased year-over-year for 13 straight quarters, with SeaDrill going from a $1.47 billion business in fiscal 2007 to a $4.04 billion business in 2010. That’s nearly triple the revenue in three years!

Profits have gone the same way, with EPS going from $1.20 in fiscal 2007 to $2.73 in 2010 — more than doubling. There was some volatility in that stretch, to be sure, including a steep quarterly loss at the end of 2008 because of the crash in oil prices and the financial crisis, but over the long term SeaDrill has proven itself a well-run business and a valuable partner for Big Oil.

And let’s not forget that oil fields are becoming increasingly difficult to access. Exxon just recently forged an agreement with state-owned energy giant Rosneft to hunt for oil in the frozen north of Russia — some of the harshest conditions in the world. The expertise of SeaDrill will become increasingly valuable as the quest for dwindling oil supplies leads more and more energy companies into harsh or deepwater conditions.

After other oil services like Halliburton (NYSE:HAL) and Transocean (NYSE:RIG) had to deal with the fallout of the Deepwater Horizon disaster in the gulf, SeaDrill has become an even more viable option for Big Oil projects, too.

If you want to play the oil surge and get paid big dividends, your typical stocks like Exxon and Chevron aren’t bad. But for a more aggressive play that could deliver two or three times the returns, try SeaDrill.

What caused the financial crisis? The Big Lie goes viral.

I have a fairly simple approach to investing: Start with data and objective evidence to determine the dominant elements driving the market action right now. Figure out what objective reality is beneath all of the noise. Use that information to try to make intelligent investing decisions.

But then, I’m an investor focused on preserving capital and managing risk. I’m not out to win the next election or drive the debate. For those who are, facts and data matter much less than a narrative that supports their interests.

One group has been especially vocal about shaping a new narrative of the credit crisis and economic collapse: those whose bad judgment and failed philosophy helped cause the crisis.

Rather than admit the error of their ways — Repent! — these people are engaged in an active campaign to rewrite history. They are not, of course, exonerated in doing so. And beyond that, they damage the process of repairing what was broken. They muddy the waters when it comes to holding guilty parties responsible. They prevent measures from being put into place to prevent another crisis.

Here is the surprising takeaway: They are winning. Thanks to the endless repetition of the Big Lie.

A Big Lie is so colossal that no one would believe that someone could have the impudence to distort the truth so infamously. There are many examples: Claims that Earth is not warming, or that evolution is not the best thesis we have for how humans developed. Those opposed to stimulus spending have gone so far as to claim that the infrastructure of the United States is just fine, Grade A (not D, as the we discussed last month), and needs little repair.

Wall Street has its own version: Its Big Lie is that banks and investment houses are merely victims of the crash. You see, the entire boom and bust was caused by misguided government policies. It was not irresponsible lending or derivative or excess leverage or misguided compensation packages, but rather long-standing housing policies that were at fault.

Indeed, the arguments these folks make fail to withstand even casual scrutiny. But that has not stopped people who should know better from repeating them.

The Big Lie made a surprise appearance Tuesday when New York Mayor Michael Bloomberg, responding to a question about Occupy Wall Street, stunned observers by exonerating Wall Street: “It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp.”

What made his comments so stunning is that he built Bloomberg Data Services on the notion that data are what matter most to investors. The terminals are found on nearly 400,000 trading desks around the world, at a cost of $1,500 a month. (Do the math — that’s over half a billion dollars a month.) Perhaps the fact that Wall Street was the source of his vast wealth biased him. But the key principle of the business that made the mayor a billionaire is that fund managers, economists, researchers and traders should ignore the squishy narrative and, instead, focus on facts. Yet he ignored his own principles to repeat statements he should have known were false. (more)

US Weekly Economic Calendar

DateTime (ET)StatisticForActualBriefing ForecastMarket ExpectsPriorRevised From
Nov 73:00 PMConsumer CreditSep-$5.0B$5.0B-$9.5B-
Nov 97:00 AMMBA Mortgage Index11/05-NANA+0.2%-
Nov 910:00 AMWholesale InventoriesSep-0.9%0.6%0.4%-
Nov 910:30 AMCrude Inventories11/05-NANA1.826M-
Nov 108:30 AMInitial Claims11/05-400K400K397K-
Nov 108:30 AMContinuing Claims10/29-3700K3690K3683K-
Nov 108:30 AMExport Prices ex-ag.Oct-NANA0.3%-
Nov 108:30 AMImport Prices ex-oilOct-NANA0.2%-
Nov 108:30 AMTrade BalanceSep--$46.0B-$45.8B-$45.6B-
Nov 102:00 PMTreasury BudgetOct-NA-$105B-$140.4B-
Nov 119:55 AMMich SentimentNov-60.061.560.9-