Money Morning
From Money Morning:
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 (RIO), the world’s biggest iron-ore producer. Felipe Reis, an analyst for Banco Santander SA, 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 on 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.
But it still represents a 59% gain from Monday’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 Monday, Merrill Lynch & Co. Inc. 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, the iShares MSCI Brazil Index (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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