# Vale Stock Forecast: A Bullish Outlook on Vale

Felipe Spritzer, is a Junior Financial Analyst at I Know Firstand enrolled in a B.A. in Industrial Engineering at the Federal University of Rio de Janeiro (UFRJ).

## Vale Stock Forecast

### Summary:

• Explanation of I Know First’s algorithm
• I Know First forecast for Vale
• Company background
• Fundamental, Technical and Scenario Analysis
• I Know First’s past successes with Vale

I Know First Stock Algorithm, generated a forecast on January 29th with strong bullish signals for different time horizons for Vale, a popular Brazilian company.

We are going to analyze the company and the scenario to check if they match the algorithm prediction. But before the analysis, we are going to give a quick explanation on how the forecast works:

### Stock Market Prediction

The I Know First algorithm identifies waves in the stock market to forecast its trajectory. Every day the algorithm analyzes raw data to generate an updated forecast for each market. Each forecast includes 2 indicators: signal and predictability.

### Signal

The signal represents the predicted movement and direction, be it an increase or decrease, for each particular asset; not a percentage or specific target price. The signal strength indicates how much the current price deviates from what the system considers an equilibrium or “fair” price.

### Predictability

The predictability is the historical correlation between the past algorithmic predictions and the actual market movement for each particular asset. The algorithm then averages the results of all the historical predictions, while giving more weight to more recent performances.

Predictability is measured on a scale ranging from negative 1 to positive 1; this metric is an adaptation of the Pearson correlation coefficient.
P=-1 means the actual market moved in the opposite direction than the algorithm predicted.
P=0 means that there is no correlation between the prediction and the actual market movement.
P=1 means that there is perfect correlation between the actual market movement and its predicted movement.

Any value of P above zero indicates a positive predictability, the higher the better. For stocks we monitor and predict, the Predictability (P) generally ranges between P=0.2 and P=0.7.

### The Forecast

I Know First’s algorithm generated the forecast for three different periods:

1 month –

Signal: 18.62

Predictability 0.61

3 months –

Signal: 28.98

Predictability: 0.77

1 year –

Signal: 94.71

Predictability: 0.71

### The company

Vale is a Brazilian multinational mining company and one of the largest logistics operators in Brazil. It is the third largest mining company in the world. In the electric power sector, the company participates in consortiums and currently operates nine hydroelectric plants.

### Fundamental Analysis

Vale presents solid numbers. It has low financial leverage, so it doesn’t depend too much on third parties and also is not paying high interests. Its profitability made a recover from 2015 and turned positive. The operating profit rose significantly in one year and net profit left the negative zone to become highly positive. The company’s net worth is massive and helps because of the economy of scale. Current ratio is almost 2, which means that it has practically twice more current assets than liabilities. Its ROE is well above the mining sector average of -43%.

The price/book is still reasonable since it’s not much higher than 1, the trailing P/E is strongly negative and it might indicate a good bargain to buy stocks, especially when the forward P/E is pointing to a huge appreciation of the company in the future.

### Technical Analysis

The first method used is to check if the development of the stock’s price pointed up in the periods of one year, six months and three months:

The green (1 year), blue (6 months) and red (3 months) lines pointed up with a good inclination. This configuration suggests that the company has a solid development and probably is going to continue its growth as a projection of the lines.

Also, when using the MACD method, is possible to see the graph below:

After the crossing of the MACD (red line) and Signal (green line) the stock’s price went up and the price was still sustained for a few days, indicating that it was not a fake bullish signal and that the tendency is the price still going up. Also, the yellow line indicates what used to be a market’s resistance, however, it was surpassed and now is acting as a support line. So even if the price goes slightly down, the chances are that it is going to hit the yellow line and go up again.

### Scenario Analysis

Vale has been enjoying the good moment for the mining sector with China as a big buyer of iron ore and the prices of iron ore going up hitting almost USD 83.00, the highest pick in a long time:

However, investors should be careful on what could become a turn in the rally of iron ore prices. Goldman’s Jeffrey Currie, head of commodities research, told Bloomberg TV on Tuesday that he’s negative on the outlook for iron ore even as prospects for most raw materials are bullish. “If we think about Brazil, Australia adding supply to the market, it’ll likely put downward pressure on prices,” he said.

Adding to the scenario, in April the shareholders agreement made 20 years ago in the privatization of the company, is coming to an end. Investors fear that a possible non-renewal of the agreement in the control block of Vale could lead to its nationalization.

However this is seen as an extreme scenario. With all stocks becoming ordinary (compared to the current 50%) the most likely to happen is that the group in control of Vale is going to buy stocks until it has reached the 51% to have full control of it. Right now Valepar (group in control) has approximately 27% of the ordinary stocks, so its expected a huge boost in Vale’s stock price during the next months as a Valepar’s strategy to maintain full control of the company.

### Conclusion

After fundamental, technical and scenario analysis it’s possible to see a lot of variables pointing to a strong bullish prediction to Vale’s stock that resonates with bullish I Know First forecast.

### I Know First Past Success With Vale

I Know First has been bullish on Vale shares in past forecasts. On June 3, 2016 and October 20, 2016, I Know First wrote bullish outlooks on VALE that brought outstanding results of 17.59% (3 days) and 19.01% (7 days), respectively. We also had good results in December 14, 2016, when vale gave a return of 12.84% in a 1 month forecast.

This bullish forecast for VALE was sent to I Know First subscribers on December 12th, 2016. To subscribe today click here.