Fool me once, shame on you. Fool me twice -- well, you know.
But, with miner Vale (VALE), this year has been a case of "fool me thrice." What's the proper response to that? No matter -- whatever insult you choose to level at me, this is a stock to which I'll continue returning, and it's one I am buying now. It perfectly represents not only my current appetite in stocks, but also my favored way to trade.
This year has seen the great underperformance of the miners and commodity stocks, despite the relatively good performance of the underlying commodities that usually drive them. Copper, for example, has hovered above $3.50 per pound for most of the year and threatens to hit $4 before the end of 2012. But, still, miners such as Vale -- and BHP Billiton (BHP) and Glencore and even Southern Copper (SCCO) -- haven't had the kind of support that such a strong underlying price should have given them.
I know the knock on Vale in particular -- the influence of the Brazilian government on production and margins; its labor difficulties; its reliance on coal. But it also Vale's huge activity in other base metals, like zinc and iron ore and manganese, that keeps driving me back to this company.
I just can't help it. I am a sucker, I suppose, for companies that both provide absolutely necessary resources for growth and sport unbelievably small multiples because they are so out of favor. In both of these respects, I keep looking for an opportunity to buy Vale, with its sub-6x price-to-earnings ratio and greater-than-6% dividend.
This time, I've fallen for the latest Chinese reports of deep iron ore shortages and slowdown of domestic steelmaking, a vacuum that Brazilian Vale is perfectly positioned to fill. Furthermore, Vale stock is -- again -- near its 52-week lows, perhaps again fooling me as to how cheap it can get.
Maybe I'll be fooled again and Vale shares will slide once more toward $16. However, I am only giving the stock a short leash, as I have correctly given it in my past two forays into owning it this year. To me, that's the way you play this stock: Be wrong for $0.50 three times if you have to, but be right for the $5 rally you're going to get sooner or later.
It's precisely what I did with the refiners, as Tesoro (TSO) and Valero (VLO) shares hovered in the single digits in 2010. I missed, I missed, I missed; then I caught $12 in the stocks -- and obviously sold too soon, as well.
That's my plan in Vale.