VALE - Vale S.A.

The Best Emerging-Markets Stocks for 2019

If you think 2018 was a rough year for American stocks, take a look overseas. Emerging markets were absolutely hammered last year. The iShares MSCI Emerging Markets ETF (EEM), the most widely followed proxy for emerging-markets stocks, finished 2018 down 17%. Many individual developing countries fared even worse. The Xtrackers Harvest SCI 300 China A-Shares ETF (ASHR) - which tracks the performance of China's largest domestically traded shares - lost 29% last year. The iShares MSCI Turkey ETF (TUR) shed 43%. But as we jump into 2019, there are several reasons you might want to give EMs another look. To start, emerging-markets stocks actually were less volatile than American stocks during the wretched final quarter of 2018. Three months isn't a long enough period to draw any firm conclusions, but it's starting to look like investors have already largely abandoned emerging markets and there's "no one left to sell." That could mean a relatively low-risk entry point for an investor looking to allocate new money to emerging markets. Secondly - and perhaps most importantly - emerging markets also are wildly cheap relative to American stocks. Perhaps not surprisingly, the U.S. market is now one of the most expensive in the world, according to estimates by Star Capital, trading at a cyclically adjusted price-to-earnings ratio ("CAPE") of 26.8. To put that in perspective, developed markets as a whole trade at a CAPE of 22.2, while emerging markets as a group trade at a CAPE of just 14.5. Emerging markets can be a roller-coaster ride. The booms can make you wealthy, but the busts can be devastating. So don't overload your portfolio in EM stocks. But at today's prices, it makes sense to have a little skin in the game. With that said, here are five solid emerging-markets stocks to buy in 2019. ### SEE ALSO: 20 Top Stock Picks the Analysts Love for 2019

VALE to Benefit From Increasing Demand Amid Cost Concerns

Vale (VALE) is poised to gain from rising demand, investment in projects and lower debt despite elevated costs.

Why Goldman Sachs Expects Iron Ore Prices to Drop to $60

Why Goldman Sachs Expects Iron Ore Prices to Drop to $60 ## Resilient iron ore prices As we noted in Is the Party Over for Commodities as China Steel Feels the Heat? in November, iron ore prices started collapsing after Chinese steel mills’ margins gave way. In iron ore’s typical price pattern, prices once again started rising and increased ~11% in December. Prices have rallied back to over $70 per ton. ## Goldman Sachs says prices could drop to $60 According to Bloomberg, in a note released today, Goldman Sachs (GS) analysts, including Hui Shan, stated that while the industry’s fundamentals have improved, more supply is on the way, which should restrict the rise in prices. The bank expects iron ore prices to fall to $60 per ton in the next six months. Goldman’s analysts argue that $75 per ton for iron ore is not sustainable for two reasons: “First, part of the rally was fueled by mills restocking ahead of the Chinese New Year. Second, supply is set to increase in 2019.” ## Downside ahead for iron ore? Morgan Stanley (MS) also expects to see losses in the commodity (XME). On January 7, it said, “We’re iron ore bears from here, though, expecting falling crude steel output and growing seaborne supply to ultimately bring price back to the mid-low-$60s/ton.” Moreover, big miners such as Vale (VALE), BHP (BHP), and Rio Tinto (RIO) have been enjoying higher premiums on higher-grade ore due to China’s switch in a bid to control pollution. This switch was supported by higher margins. As margins have waned, it seems like the party might be over for iron ore miners, at least in the short term. The producers of metals such as copper (FCX) and aluminum (AA) have also been under pressure due to China’s muted demand outlook. You can read Why Iron Ore Is Bucking Falling Price Trends Unlike Other Metals for more on this topic.

Factors Driving Rio Tinto’s Earnings Estimates in 2019 and Beyond

Rio Tinto (RIO) (TRQ) stock has returned -9.8% YTD (year-to-date) as of December 21. Similar to BHP Billiton (BHP) stock, it fell 2.6% in the first quarter, but as commodity prices firmed up, miners’ stocks picked up in April. Rio Tinto’s stock price has lagged those of its peers, including BHP Billiton and Vale, primarily due to its lack of catalysts. In 2018, analysts expect Rio Tinto’s revenue to show flat growth over 2017, coming in at $40 billion.

Analysts’ Latest Upgrades and Downgrades for Rio Tinto

Of the 16 analysts covering Rio Tinto (RIO) stock, 62.0% have given it “buys,” 25.0% have given it “holds,” and 13.0% have given it “sells.” Its ratings have remained more or less the same for the last few months. Of the analysts covering BHP Billiton (BHP) and Vale (VALE) stocks, 39.0% and 78.0% have given them “buys,” respectively. Cleveland-Cliffs (CLF), which is mainly exposed to the US domestic market, has “buy” recommendations from 64.0% of the analysts covering its stock. Analysts generally expect its premium to come down compared to those of its peers due to the lack of any significant catalysts.

Should Alcoa Be on Your Shopping List for 2019?

As we noted previously in this series, Alcoa (AA) and other aluminum producers—including Century Aluminum (CENX)—are having a terrible year as aluminum prices have plunged. With the recent fall in aluminum prices, several Chinese smelters are losing money.

Copper Throws Mixed Signals for Markets

Is Freeport-McMoRan Worth a Look Now? Copper prices are seen as an indicator of global economic activity. While copper fell below the psychologically crucial $6,000 per metric level a few times in 2018, it managed to hold that level in the recent market crash.

Mining Stocks Look Dead unless China Stabilizes

Is Freeport-McMoRan Worth a Look Now? As we noted in the previous part, mining companies including Freeport-McMoRan (FCX), Vale (VALE), and Southern Copper (SCCO) are having a somber year. While there have been growth concerns across the globe, China’s slowdown has been the biggest challenge for metals and mining companies.

Is Freeport-McMoRan Worth a Look Now?

Freeport-McMoRan (FCX), the leading US-based copper miner, has been struggling in 2018. The stock has fallen 44% year-to-date based on its closing prices on December 18. Other copper miners have followed copper lower. Diversified miners including BHP Billiton (BHP), Rio Tinto (RIO), and Vale (VALE) have also come under pressure. There have been more concerns about the Chinese economy.

Why Should You Add Mosaic (MOS) Stock to Your Portfolio?

Let's see what makes Mosaic (MOS) stock an attractive investment option at the moment.

Can Industrial Metals Make a Comeback? (RIO, FCX)

Why China Needs More Than a Trade War Truce to Buck the Slowdown

Due to China’s slowing economy and weaker credit growth, market participants have been expecting the government to take aggressive policy action, including a rate cut. In this article, we’ll see how China’s credit growth data are progressing. The data for China’s credit indicators for November were released by its central bank on December 11.

Will Chinese Steel Mills’ Pains Intensify with the Trade War?

Chinese steel producers have finally come under pressure after reaping significant benefits over the last three years. In November, steel mills ran losses as steel prices entered into bear territory. The current uptrend for steel mills started when Chinese authorities removed high polluting capacity starting in 2016.

Is the Party Over for Commodities as China Steel Feels the Heat?

It seems like it’s already time iron ore prices gave way to weakness. On November 26, iron ore prices collapsed, recording their largest one-day fall of 8.4% since April 2017. The day marked iron ore’s fifth straight day of falling.

Weakening Outlook Keeps Pushing Chinese Steel Prices Lower

China’s steel prices entered a bear market in late November, with the most active rebar contract on the Shanghai Futures Exchange falling 21% since hitting a seven-year high in August. At present, the most active May rebar contract is trading 18% down from its August peak.

China’s Iron Ore Imports Have Fallen, Outlook Remains Muted

China consumes more than 70% of seaborne-traded iron ore, so it’s important for iron ore investors to track the country’s demand and outlook to gauge the overall outlook for iron ore. China imported 86.25 million tons of iron ore in November, implying declines of 8.8% YoY (year-over-year) and 2.4% sequentially—and marking its second straight month of decline. This weakness has been weighing on the demand for imported iron ore.

How Vale’s Valuation Multiples Look

Currently, Vale (VALE) is trading at a forward EV-to-EBITDA multiple of 4.9x, which is a discount of 23% to its past five-year average multiple. Diversified miners (GNR) Rio Tinto (RIO) and BHP Billiton (BHP) are trading at similar multiples of 5.5x and 6.1x, respectively.

Chinese Copper Imports Fell: Not a Reason to Panic Yet

In the previous articles, we discussed China’s steel and aluminum exports. While China (FXI) accounts for the bulk of global steel and aluminum capacity, it lacks in copper deposits and is the largest copper importer. China imported 423,000 metric tons of unwrought copper last month, a YoY fall of 3.0%.

Vale Has Delivered on Deleveraging Plan: What’s Next?

At Vale Day in December 2017, Vale (VALE) had committed to reducing its net debt to $10 billion from $21 billion. While it was at that time seen as quite an ambitious target by analysts, Vale has achieved its aim. During Q3 2018 results, Vale reported that its net debt totaled $10.7 billion, which is the lowest level since Q3 2009.

Vale Is Getting Ready for the Electric Vehicle Revolution

On Vale Day on December 4, 2018, Vale (VALE) said it is getting ready for the coming electric vehicle revolution. Previously, the company had cut back on its volumes in base metals to better align production with market conditions. Nickel, cobalt, and lithium are used in rechargeable batteries in electric vehicles.

How Does Vale Plan to Unlock Value in Coal?

For 2018, Vale is guiding for 12 million tons of coal production, which implies flat growth year-over-year. Building a buffer: Vale is building a buffer stockpile to increase availability. Most coal companies (KOL) including Peabody Energy (BTU), Westmoreland Coal (WLB), and Alliance Resource Partners (ARLP) are facing challenges due to falling coal demand.

What Is Vale’s Iron Ore Price Outlook?

Vale’s (VALE) CEO mentioned during Vale Day that the recent weakness in iron ore prices was expected due to the start of the winter season in China. Also, steel capacity cuts in China are lower this year as compared to last year, while steel mills are following the same approach of producing more in advance. This has led to additional weakness in iron ore.