As the Russia-Ukraine Crisis heats up, commodities have come the forefront of investors' minds. Russia is a major exporter of oil, nickel and wheat. These commodities have all seen major price surges, with oil surpassing $120 per barrel and nickel prices skyrocketing past $100,000 per ton for a brief period in what analysts called a “metal short squeeze." Nickel prices have since come back down to earth ($48,000 per ton) after the The London Metal Exchange suspended trading, but the metal is still up more than double from a month ago.
Nickel is a popular metal that is a key component in electric vehicle batteries. Thus, as the world transitions toward more renewable energy, the metal is expected to be in high demand. Elon Musk, the founder of the world's largest EV company, even asked nickel producers to "mine more" in a 2020 earnings call.
As a result of these developments, miners around the world will benefit. One of them is Vale SA (VALE, Financial).
The Brazilian miner is the largest producer of nickel and iron ore in the world. Thus, the company is poised to benefit from the Russia sanctions on two fronts, with both the nickel and iron market having a supply constraint. The refusal and possible ban of Russian exports should cause institutional capital to flow to developing regions such as Latin America.
According to Morgan Stanley Investment Research, in December 2021, the Brazilian real, the Mexican peso and Russian ruble were growth currencies for 2022. Of course, the Russia-Ukraine crisis was not accounted for and, as a result, the ruble has crashed. However, this does leave the door open for Vale to step into the void.
The company offers over a 14% dividend, which is incredible given the momentum in the industry. Revenue has surged 77.22% year over year, the current gross profit margin is 61.16% and cash from operations stands at $29.57 billion. The company has also been buying back shares, which shows confidence moving forward.
The GF Value Line, which looks at historical ratios, past financial performance and future earnings projections, shows the stock to be fairly valued at the time of writing despite the major price increase.
Guru buys
Value investor Howard Marks (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies and growth stock firm Baillie Gifford (Trades, Portfolio) were recently buying more Vale stock at an average price of $13 per share.
Risks
Many nickel stocks have had a major run up in price, which could mean they are approaching overvalued territory. If the conflict between Russia and Ukraine is resolved sooner rather than later, commodity prices may also come back down to earth, though I do believe many investors and industries will be permanently wary of Russian imports.
Commodity prices such as nickel can be extremely volatile, so I wouldn’t recommend diving into a short squeeze as you will most likely get burnt. However, becoming more aware of the companies in the space can offer an advantage to you moving forward. I will be staying away from highly volatile, small-cap stocks and sticking more to the big players and funds.
