Update Vale (VALE)
(I’m ratcheting up my vacation a notch next week for my annual summer recharge of my batteries and taking Jubak Picks completely dark for a week or so until August 24. I will resume my regular posting schedule when I return.)
What was most interesting about Vale’s (VALE) second quarter (July 29) earnings report wasn’t how much money the mining company made—although it made a metric ton—but what it’s doing with it.
For the quarter, net income surged to $3.71 billion or 70 cents a share from $790 million or 15 cents a share in the second quarter of 2009. That really wasn’t any surprise. Wall Street analysts had pegged earnings at 70 cents a share for the quarter on a doubling in iron ore prices from the second quarter of 2009 and an increase in production at the company. Vale sold 670 million tons of ore and ore pellets in the second quarter, a 29% increase from the second quarter of 2009. (Vale is the world’s largest producer of iron ore.)
In the last two years the iron ore industry (happily) and its customers (grudgingly) have moved away from a system of annual contracts with long-term guaranteed prices to one based on often rapidly fluctuating spot prices.
The future looks solid for Vale and its industry too. Global shipments of iron ore will rise 6% to a record 961 million tons in 2010, according to Clarkson, the world’s largest shipping broker.
So where’s Vale putting its profits?
First, into a fleet of ships and new distribution centers that will enable Vale to close some of the cost gap with Australian rival BHP Billiton (BHP) in shipping ore to China. BHP Billiton and Rio Tinto (RTP) have picked up share in the market for seaborne ore because of reduced demand in Europe and the shorter distances from Australian mines to China’s steel mills.
Second, Vale continues to invest in becoming a diversified mining company rather than just an iron ore mining company. Vale announced plans to buy Brazilian copper producer Paranapanema for $1.2 billion.
And third, Vale continues to build up speed in the race to secure a share of Africa’s iron ore deposits, the last really big undeveloped deposits of ore in the world. At the end of April Vale reached agreement to pay $2.5 billion for a 51% stake in BSG Resources to gain access to iron ore deposits in Guinea.
Not all this capital investment will come from profits or the capital markets. Vale will sell aluminum assets to Norsk Hydro for $4.9 billion in order to redeploy capital to faster growing businesses.
Vale is a member of my Jubak Picks 50 long-term portfolio (http://jubakpicks.com/jubak-picks-50/
Full disclosure: I don’t own shares of any company mentioned in this post.
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Does anyone have an opinion on the Brazillian company SID? They are vertically integrated and are the second largest steel maker in Brazil. They have a good dividend to boot. Where can we find more information on this company?
Jim, You said:
“Vale is a member of my Jubak Picks 50 long-term portfolio (http://jubakpicks.com/jubak-picks-50/”
Then you said:
“Full disclosure: I don’t own shares of any company mentioned in this post.”
That must be one hell of a vacation your on!!!
DJBarber, I think Jim explained it here: http://jubakpicks.com/2010/07/28/finally-the-launch-of-my-new-subscription-newsletter/
“I’ve sold most of my portfolio of individual stocks and put the money into Jubak Global Equtiy Fund. That’s why in updates to picks that I once owned, I’m now saying that I don’t own shares anymore. I now own very few stocks–some stuff that doesn’t fit the global focus of the fund such as small bank stocks.”
Though I do hope Jim is on an excellent vacation!
Have a great relaxing time! We Shall miss you; but look forward to your return!
Jim,
you did not mentioned that Vale also wants to become a major fertilizer producer of potash and phosphate rock
I think people are confusing Jim’s personal portfolio with the theoretical portfolios he maintains on this blog/MSN.
His personal portfolios are where his money is and could be completely different then the ones he maintains for this blog/MSN because even if he recommends a stock as being a good buy, that doesn’t mean it is a good buy for him, given his other investments or point in life. Just as not all the portfolios are good for everyone. You might have too much invested to take on another tech stock he recommends, or you might be retired or whatever.
Actually when I think about this whole “disclosure” idea I realize that even with honest people like Jim you have to take it with a grain of salt and maybe just rely on if you can trust the person instead.
The whole idea of the disclosure is to give you heads up that the person may or may not have money in the recommendation, and as such might be biased by it.
But what does that really mean?
For instance Jim is now heavily invested in his fund. His fund invests in X stock. So on one hand Jim might not “own” X stock, but the fund he owns/maintains does. So in truth he has money in X stock and theoretically could be just as biased as if he owned X stock directly.
Of course it isn’t really practical to announce that you own stock X when you own it through a fund, just imagine if you had an index fund of the S&P 500, you can’t possibly list all the stocks it owns everytime.
The easiest way to find out which stocks are owned in Jim’s new fund is to invest some money into it.
What about a few stock insights? Anyone thinking about investing in minerals or cyclicals based on the a supposed slow down in China? Contrarian thoughts, please.
I AM considering to “Let Jim Do It” . . . so, any of you have notes comparing the JAM Newsletter, JUBAX and the plain JubakPicks?
I feel like Jim is letting this website go dormant. This has been happening over the past couple of months. I think that we now need to pay to play.
Nothing wrong with charging for his time and talent instead of giving it away. Reminds me of what my mom said to my sister about the cow. we’ve all been a little spoiled by Jim’s generosity over the years.
But his posts haven’t really slowed down save for his vacation. What seems to have slowed down is the participation from the peanut gallery. Maybe it’s just the dog days of august and comments section will pick up again come September.
To find out why it is important to think for yourself perhaps a revisit to the recent sections on Potash, POT is in order. Premarket today POT is up $31 on a takeover bid. I don’t have a website like JIm or a blog like savvy Eddie McGon and I don’t run a mutual fund but who made you money? lol…I’m kidding a bit of course because even a blind man with a dart board is right sometimes but my point holds. Sometimes people over analyze (Jim) and sometimes people just baffle with intelligent sounding b.s. (EdMcGon) but in the end it is your money and if you are smart and don’t follow the herd you have a decent advantage in this market dominated by hedge funds, pension plans and mutual funds who have to dress up every quarter.
Congrats southof8!!
daamn, i sold mine at 100…..guess cant complain too much due to picking up a nice chunk of STD, but this still stings
If any of you still have POT, I’d sell it now. Potash turned down the takeover bid, and the stock has already started dropping. Sell now, take your profits, and buy it back when it’s $30 cheaper than now.
No worries GeneD..another one will come around!
Commodity stock rules (hard to follow) buy when they are hated but average into the position because they often go lower than you think they should and take some profits on the way up but never sell it all because they often go up a heck of a lot more than you think they should. Take a look at CNQ for another shot at glory! Oh…and don’t listen to “savvy experts” on blogs…………
I think maybe a bunch of the peanuts followed over with Ed McG- thus the refreshing silence, or at least lower volume. I agee that Jim has been very generous over the years, and other than his vacation I have not seen much of a slowing in his gratis output. I also don’t begrudge him making a dime off his work…
The Picks and Portfolios are all still there, with his original insights; the fund and the newsletter are there for those who would rather Let Jim do It [I'll let do Jim do some of it, anywyay...], and as the man said, you can put in a bit of time, and work, and thinking for yourself and take whatever of Jim’s [or of the peanut gallery] that works for you.
I would agree with Ed on POT, either sell or put in a stop limit order… as I kick myself for not buying a few months ago when it was in the low 90s…
TLA
Having blathered all that blither, yeah I would rather talk investing too-
I don’t have any insights about investing in China mins or cyclicals, so I am looking at a newish ETF- CHXX for that purpose, altho it is supposed to be more “infrastructure” [which is OK by me, close enough. Mining companies scare me- and they have been my life-long career!]. Just waiting for that big bust in Shanghai…
I looked around a little for SID- there is a lot of company info, history etc. on Wikipedia, but not much for financials [and they don't seem to have a website, at first glance]. I’ll keep digging; anything solid with a div like that interests me, even after the 15% w/holding. I just want to make sure it is relatively solid…then I will take Jim’s word for it on Brazil in general. What do you know of it?
Back to China- and Jim: I’ve noted that a lot of Jim’s ideas work out really well, but maybe not quite at the time he suggest them, especially not for the day traders. One of his ideas that keeps plummeting is DGW. It is a new[ish] issue, started at 20, peaked above 40- as IPOs do- and has been under 17 recently. Jim liked it at the time, and I can’t see that it has changed much except that the price is a whole lot better… if it goes much lower I will try a bit because I agree with Jim about water [I own some VE].
I also agree with Jim- to a certain extent- about batteries. His idea AONE was not bad at the time, but again- an IPO high-flyer flameout [I learned years ago that if you cannot get in at nearly the issue price it is better just to wait a few months and get the screaming deal.] In this case, it seems the company is also struggling a bit- so maybe better to wait until it goes down another 3 points or so, and try it as a longer-term speculation [unless there is more bad news].
Could there be more bidders for POT? http://blogs.wsj.com/deals/2010/08/17/analysts-react-bhp-makes-a-move-for-potash/
If so, this would argue for a stop limit and not an outright sell. This would allow more upside gain if another bidder emerges or the current bid is increased.
wow…no sooner did I mention bad advice on blogs and we get two pieces! Eddie have you ever heard of negotiating, or competitive bids? Look at the Dofasco record and learn. As for the stop loss that is just a great way to get whipsawed. By all means if you have a decent position take a little off the table and enjoy it but do keep some as well. Any takeout of Potash will be closer to $200 than $100. Maybe I should start a blog………..
EdMcGon,
I’m long POT. While my first impulse is exactly what you said – SELL NOW, take this outsized gain and ask questions later, do you think POT management is just trying to get BHP to raise their offer price (by rejecting first offer)?
Still, I probably shouldn’t be too greedy when I get a 26% up move.
I am and I will be long on Potash Corp. ‘nff said!
Sold a majority of my POT at $142.87. Keeping a little in case BHP raises their bid, which many seem to expect.
ryanpatrik
from the sound of things you may be the proud owner of the POT I just sold out of. Good luck to you. She’s a fine company. She was even finer when I picked her up around 105 last time..
I’ve done a number of round trips on POT. I still believe she’ll come back to me someday… when the price is right. If I’m wrong. Hope you get 200.
Pony, if you’ve been reading Ryanpatrik from early on, you’d know he was in Potash at around 85. Read the man’s posts- he’s not a momentum buyer.
In June 2008 POT was trading at 228 a share. Probably a little bubblicious but it gives you an idea where the top could be if BHP and the other big miners (Vale and RTP) are really interested in diversifying away from metals. But Hogs get slaughtered so I’ll be happy with my piggish gain and sell 25% of my holdings and let the rest ride.
If POT gets taken out, any guesses on whether its acquirer unloads POT’s stake in SQM, which is my second favorite miner? It would seem an easy asset to sell off to pay down some of the acquisition related debt that will inevitably get piled on.
Pony, congrats on a nice profit. southof8 was right though and I was not the other side of your trade!
I’ll be with southof8 hanging on to some of my position because POT will not go easily or cheaply. This is a long term strategic asset and I don’t think China for one will let it go to BHP without a fight. Of course the whole thing could fall through, but something of a floor price has been established now and $85 is likely a distant memory.
Don’t get me wrong, I am not suggesting adding shares unless you are a real nimble risk taker. Options would be a decent way to go if you are such a person. I’m just saying it doesn’t make sense to take the first offer with your whole position since, as south0f8 points out $200 is not without precedent and the current price of $142 is really not that high when you consider that POT traded at $128 on its own less than six months ago.
Eddie McGon was actually right for a change about one thing. POT management rejected the bid and rightly so since it is far too low. The rest of his post was poorly thought out drivel as usual. Does he really write a blog that people read???
Southof8–My first instincts were that a POT purchased by BHP would shed all POT’s security holding that they could. $40+ bln. is a lot of money to raise or spend out of working capital. I’d bet the $7 bln. of other company paper that POT holds (likely bumped up higher today) would go fairly quickly to help pay for what BHP would control. They’re best at mining.
A reason they wouldn’t sell would be due to a lack of buyers in bulk, or suppressed market values as people expect them to dump. Or maybe they want to become investors instead of miners.
I don’t want to load up on poor Eddie (like you groupies are going to become) but I second ryanpatrik’s sentiments (and not for political reasons as others do). Here’s the secret: Eddie’s Analysis can be boiled down to a quick google search combined with sticking the ticker in at forbes.com and knee-jerking a “call” on the stock from the metrics Forbes spits out (that may be completely wrong/unrepresentative). That’s it folks! The amazing secret to his oh so in depth balance sheet mining.
If you want an example then look up his LUK = Tyco post. Yeah, that was a copy of an article written long ago by someone who wasn’t smart enough or was too lazy to understand LUK’s accounting. LUK’s good enough for the #1 investor in the world to work with, Warren Buffett, and many other highly respected investors to purchase (Monish Pabrai, Bruce Berkowitz), but your amazingly insightful Eddie will warn you they’re a ponzi scheme.
So now you’re warned and understand the quality of advice you’re praising.
Disclaimer: Long LUK.
I think the criticisms of Ed are a little unfair. The guy has the balls to post his picks, win lose or draw, and share his insights. He should be applauded, not criticised. If anyone wants to take him on, and point out the error of his logic so we’re all the better for it, have at it. But I’d rather the guy speak and be wrong than be shouted down into silence by those with different perspectives. That goes for anyone else too.
I told you guys to sell POT yesterday. Now you just lost another $13/share:
http://noir.bloomberg.com/apps/news?pid=20601087&sid=a4GI.nrrj.EA&pos=1
Until another bidder shows up, you’re stuck with what you’re getting. Frankly, the only chance you have of getting more on POT is if another company was already eyeballing them for a takeover, or tries to stupidly outbid BHP just for the sake of outbidding them. Most companies don’t generally make a buyout bid without at least some due diligence.
sigli,
And LUK is a great stock because a bunch of big-time investors are losing their shirts on it? Look at the results for LUK:
For the past week: -4.6%
Past month: +5.2%
Past quarter: -7.1%
Past 6 months: -8.6%
Past year: -14.1%
Unless they bought it a month ago exactly, they are losing money on this dog. The chart is ugly (a downward wedge) and it has an overpriced P/E (26). Even IF you think this stock is going to be something special, it hasn’t shown the past performance to justify it’s price, and now it has to improve going into a weak economy? Let me know how that works out for you.
ryan,
Would you mind pointing out the “drivel” in my comment, since I didn’t say anything more than what you agreed with?
At least in pre-market, POT is up to $146 and change. The move to a hostile bid will most likely drive the price up. The $130 offer is too cheap and will fail, so BHP will have to throw more coin on the table. Either way, it could be drawn out for a bit, unless some large shareholders of POT are ready to cash out.
Southof8 – Thank you – agree totally with you on Ed.
In the normal human psyche, criticism is mostly borne out of jealousy, and the intelligent mind learns something from everybody, from everything.
I discoverd JJPicks just a few months ago – but I have read a lot of positive feedback on Ed’s posts. Many have sought and benefited from his opinions/advice.
Personally, I have learned much, and not just about investing, from everyone in this ‘open classroom’. Thank you All!.
For the POT holders … just in case, you missed this: “Analysis: Russians still set to hold potash pricing key” http://www.reuters.com/article/idUSTRE67G40F20100817
Good day, everyone!
Off topic: “Construction lending is really the cocaine of the banking industry,” says veteran banker Rollo Ingram. “They’re easy to do. They’re big-dollar loans that can bulk up a balance sheet. And there are always developers who want loans.”
http://www.usatoday.com/money/industries/banking/2010-08-17-banks17_CV_N.htm
“Across the banking system, nearly 17% of construction loans were non-current — at least 90 days past due or otherwise in trouble — at the end of March, a record level and a stark contrast to less than 5.5% for all loans, according to the latest numbers available from the Federal Deposit Insurance Corp. For construction loans on one- to four-family residences, the percentage of bad loans is even worse: nearly 23%.
Eddie McGon I think you need a new ticker since I see POT up today. Since you asked, the drivel part of your post was that we should sell out of POT because management rejected the bid and the “stock was already dropping”. First you could expect a small initial decline (and it was very small and short lived) since there are always a few people who get suckered out like you or who just want to lighten the load a bit to remove some risk. In case you didn’t notice the stock was up nicely.
Second, if you ever had any experience in any kind of market or negotiation you would know that a “rejection” is just a tactic. It is one thing to be naive and foolish Ed but it is a whole other thing to profess great knowledge and spread your ignorance to unsuspecting newbies. That, folks is why I have been on Eddie’s case. I am offended by his kind of psuedo expertise.
Anyway, the Potash story is far from over and the final price will probably be closer to $200 than $130. Hold on to a few shares at least so you can enjoy the ride since this kind of bonus comes along rarely enough.
I have liked Jim’s insight for many years but since Jim is going the “for pay” route I am no longer going to spend any time here. I actually make a living in the market and don’t really have any more time for this.
Good luck guys and remember to think for yourselves.
“I am offended by his kind of psuedo expertise.” Exactly. It’s one thing to stick your neck out and make call after call after call. It’s a completely different thing to make flippant remarks postured as deep balance sheet insight (which were actually taken from a web service that may be completely wrong, or skewed by various events, rather than true study of the 10-k’s, etc.).
Look, I like you fast Eddie. You can contribute much. What I don’t appreciate is that you don’t simply say “I have no clue” when your responses tell those who know better that you don’t. Your posturing is going to hurt a lot of unsuspecting people, and I’m not sure that should be left without criticism. Then again, who am I to care if someone needs to learn a lesson the hard way?
ryan,
POT is up on speculation that someone is going to overpay for it. Mind you, no one has made that offer, and the only offer on the table is still BHP’s for about $17 less than it’s trading for now.
As for POT’s negotiating skills, if they were actually negotiating, they would have made a counter-offer to BHP. Flat rejection of BHP’s bid is called “walking away from the table”. There is no negotiation going on.
Finally, when did I claim to have “great expertise”? Just because I don’t waffle on my opinions doesn’t make me a self-proclaimed expert. I put my opinions out there, and if you want to prove me wrong, or even suggest an alternative idea, have at it. That doesn’t mean you have to be nasty about it.
Take the POT situation for example: Can you say with 100% certainty that POT will even be bought? If the shareholders reject the $130 offer from BHP, and nobody wants to offer more, then it simply doesn’t happen. On the other hand, if another buyer doesn’t come forward, the shareholders might take the $130 offer, which is still plenty generous, since POT cannot currently maintain a price of $147 on it’s own (with a P/E of 31? Get real!).
sigli,
If anyone out there is taking my advice without doing their own research, I agree with you. But I never claimed to be an expert, pseudo or otherwise. If you, or anyone else, don’t like the fact I’m not throwing a disclaimer behind every opinion I give, that is your issue, not mine.
If someone wants to constructively critique my opinions, have at it. I welcome such criticism. I welcome other people’s views, even when they differ from my own. You and ryan are welcome to tell me I’m wrong. All I ask is drop the nastiness. I’m not doing anything wrong or evil, just expressing my opinion.
This is a financial blog. Please take your personal criticisms elsewhere.
Ummmm, dismissing an offer outright as being too low is definitely a negotiating tactic. See, e.g., Cadbury’s response to Kraft.
Financial Times had some neato graphs and charts this morning showing just how much Potash orders ramped up from 200 to 2007 and then crashed. 2009′s consumption was close to 2000′s. Any backyard gardner can tell you withholding nutrition won’t hurt in the short run but will in the long run. There is no question Potash use is going to ramp up and prices with it. This story is not over and Ryan is exactly right that POT sells for closer to 200 than 130. UBS this morning upped its price targed to 170 and I think that is within a few bucks of the take out price BHP will pay. No POT shareholder is going to sell out at 130 with the stock at 128 a couple months ago. BHP is posturing with all its talk of hostility.
But disagreements make a market. Might buy back my 25% sold yesterday at 143.92.
Ryan, we’ll miss you. YOur insights are money. Thanks for giving a weekend player a chance to share your knowledge.
southof8,
And Kraft came back with a higher bid, not a lower hostile takeover bid.
For your consideration:
http://blogs.forbes.com/nathanvardi/2010/08/18/bhps-potash-deal-might-not-happen/?partner=yahootix
IF BHP is willing to put up $200/share for POT, they might bite. POT might even settle for something in the neighborhood of $160-170. But until then, this deal is far from over.
If BHP does pay $200 for POT, they’re fools. Paying nearly a 100% premium on a stock, in an uncertain economic environment? That’s insane. Especially when you consider BHP already has a potash operation.
Don’t get me wrong. POT might be worth that $200 next year, or even the year after that. But there is plenty that has to go right for them to get there. To think they are worth now what they were worth near their peak in 2008 is a bit of a stretch.
Southof8, Ryan & Sigli…I have been reading Ed’s comments on Jim’s picks and watches for quite some time. Please stop this nonsense…Ed please keep up the good work. Even when I and YX were arguing about India…Ed came up with a clean opinioin (negative opinion) without being nasty. So quit whining…..Unless Jim boots anybody from this page…I think you guys don’t have any right to be nasty to Ed..
OK I know I said I was not posting here any more but I want to explain why I have been on EdMcGon’s case. I’m sorry if some of you think I was mean but it really offends me when people spout nonsense couched in a bunch of “expert blather”. Ed does this on a very regular basis and if you need an example just read all of his posts right here regarding Potash.
They are factually incorrect (“the stock is dropping” “you just lost $13 a share”) they show a shocking lack of any expertise (“the takeover is going no where because management rejected the first bid”) and they evolve into downright funny in their inconsistency (read his entire last post, esp the part about Kraft).
I wouldn’t have said anything if Ed wasn’t so darned pompous and prolific or if it wasn’t becoming obvious that some of you were actually taking him seriously and might even be making investment decisions based on his advice.
Sorry if I have offended anyone but if I got even one person to stop listening to this nonsense I will feel good about it.
Good luck everyone. Think for yourselves. Beware of “experts” on blogs.
Oh..southof8…. instead of buying back the shares consider call options. The dec $145s are not a bad bet at $10.5 or so. You profit if the final price is above $156 yet you risk only $10.5 of your profits. Glad you made a nice profit!
Personally, I value hearing all of the opinions that people like Ed and South bring. A diversity of information and perspective helps to vet and rank the opportunities and hazards in the market.
Also, w.r.t. Jim’s quietness, he’s been on vacation…
Lots of his posts here are article-length and end up being syndicated on moneyshow.com, msn and elsewhere. I don’t think he’s doing too much of that while on vacation. His posts on jubakam.com have been shortish, frequent and to the point. There have been no trade recommendations or targets.
While I’m looking forward to seeing him back, I think he’s taking a vacation at a quiet period in the market and I say he’s earned it.
I came here this afternoon to see if anyone else was following the POT story. That you all are but there are far too many flaming posts. No one should take advice on a bog as written in stone. However, people who consistently contribute ideas are always worth listening to. It’s too bad that certain people here have problems with others but no one is forced to read anything. Diversity of opinion is far better than looking at your own reflection in a mirror and being impressed.
Just for the record, I am up 40% with POT and still holding. There was an interesting analysis today on Yahoo Financial discussing the Chinese opposition to a BHP takeover. These two have already crossed swords over iron ore and apparently POT holds a large minority position in a Chinese mining company. The Chinese do NOT want to find themselves forced to bow down to BHP. This should get interesting.
One last comment. Deere reported excellent earnings although their European sector was poor. Their future guidance for the rest of the world was good.
ryan,
I will try and sound more stupid next time.
Right now, the valuation for POT is higher than the valuation for Apple. And you expect for me to take seriously that POT has more long-term growth potential than Apple?
Granted, in a buyout situation, valuations get distorted. But you are assuming that it is a done deal that either BHP will raise their bid or another bidder will show up, when nothing could be further from the truth. If this deal doesn’t go through, this stock WILL drop. If the deal gets approved, the stock drops to $130.
But you are right about one thing: beware of so-called “experts” on blogs. Including yourself.
It seems to me POT has gone from an “investment” to a “speculative play” right now. Ed is arguing from an investment standpoint it doesn’t make sense to buy POT. From a speculative play, it is hard to tell. I don’t think we have enough information to make a sound decision yet. I sold all of my shares for a 50% gain because I’m not willing to deal with the stress of trying to figure out POT as a speculative play. I bought shares because I saw them as a good long term investment.
I still see fertilizer as a good long term investment, I think I’m going to look for another to invest in with my profits from POT once things settle down.
oops, I meant to write “I’m going to look for another fertilizer company to invest in…”
I am going to add one more point: Who is going to bid against BHP? You only have to read Jim’s post to realize it won’t be Vale, as they are concentrating their resources in expanding their metals market share. And Rio just isn’t big enough to get into that kind of a bidding war with BHP.
There won’t be another bidder. Take your profits now, or take BHP’s offer of $130. Otherwise, the drop is back to where you were before this started, about $112. And it could be years before you see this level again, if ever.