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Hot Stocks: Despite Lowered Target, Vale Still Poses Potential 59% Gain, Analyst Says

[“Hot Stocks” is a new Money Morning feature that analyzes the investment outlook of global companies that are in the news. This is the sixth installment of this ongoing investment series.]

Money Morning Staff Reports

Riddle me this: When is it good news when an analyst slashes his price target for a stock by 55%?

Answer: When that “reduced” target price still represents a 59% gain.

That’s precisely the scenario facing Companhia Vale do Rio Doce (ADR: RIO), the world’s biggest iron-ore producer. Felipe Reis, an analyst for Banco Santander SA (ADR: STD), yesterday (Monday) slashed his target price for the U.S.-listed shares by more than half, stating that the worldwide outlook has become “more challenging.”

Reis, who previously had placed a year-end 2009 price target of $40 a share Vale’s U.S.-listed American Depository Receipts (ADRs), now says the shares of the Rio De Janeiro-based mining-and-metals heavyweight will trade at $18 at next year’s close. If you’re keeping score, that’s a reduction of 55% from his prior target.

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But it still represents a 59% gain from yesterday’s closing price of $11.32 a share.

”We are adjusting our estimates for Vale in order to reflect the more challenging scenario in the commodities market,” Reis wrote in a research missive, noting that the reduced target price takes into account “the significant global economic slowdown.”

In related news yesterday, Merrill Lynch & Co. Inc. (MER) cut its 2009 economic-growth forecast for Brazil to 2.9%, from a previous estimate of 3.1%, as the lagging effect of scarcer credit may be deeper than thought.

The Brazil exchange-traded fund, theiShares MSCI Brazil Index (NYSE: EWZ), was the focus of a recent Money Morning “Buy, Sell or Hold” column, and soared as much as 42% in six days after it was recommended as a “Buy.”

Money Morning Contributing Editor Martin Hutchinson also recently wrote favorably about the long-term prospects of the Brazil economy as a “safe haven” market that U.S. investors should consider.

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This entry was posted on Tuesday, November 18th, 2008 at 5:19 pm and is filed under Hot Stocks, Top News. You can follow any responses to this entry through the RSS 2.0 feed. Due to the amount of comments we receive Money Morning will not be able to respond to all questions. If you have not already registered to leave a comment, once doing so you will receive Money Morning's Daily Email.

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  1. Comment by Matt Leahy on 19 November 2008:

    I feel like any reduction in proce targets right now are fairly meaningless. A company like Vale, which is exposed to a commodity, iron ore, is falling rapidly. Therefore, I dont think its fair to say with any amount of certainty where Vale should be trading a year from now. I understand that its an analyst job to atempt to model that future price, but its certainly no guarantee. With its main products falling so fast, its very difficult to model Vale at this time. It could be $10 or $40 next year, its really uncertain.

  2. Pingback by Hot Stocks: Citigroup to Buy Back Billions in SIV Assets, May Face Another Write-Down on 20 November 2008:

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  3. Pingback by Hot Stocks: Despite Lowered Target, Vale Still Poses Potential 59 … | forexaud.com on 20 November 2008:

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