Brazilian mining giant CVRD still undervalued

Companhia Vale do Rio Doce (CVRD) is one of the big three in iron ore and, together with BHP Biliton and Rio Tinto, makes up about 70% of global iron ore exports. The Brazilian mining giant is a little less diversified than its counterparts, but through last year's takeover of Canadian nickel miner Inco the company has actually become a more attractive player in the sector. Not much needs to be said about this company: turnover rose from 225% from 2001 to 2005, whilst net income went op 276%. EPS growth has been really impressive until today and this is not expected to change with metals prices currently booming. Being a firm believer in a metals boom, I expect prices for all metals to go higher and earnings growth should therefore continue to be admirable. A further diversification won't hurt either. Part of the company's strategy is to invest in aluminium, copper, nickel & coal, whilst at the same time aiming to grow its logistics business. With expected 2007 earnings per share of around US$3.60, CVRD now trades at a fwd p/e of 10. Keeping in mind that the mining craze will add fuel to the valuations of companies throughout the global mining sector, p/e ratios of 15 would still be modest for 2007. This means that a price target for 2007 of US$55 is -in my humble opinion- certainly realistic. This leaves a 50% upside potential for CVRD from its current price of US$35.90. CVRD will therefore be added to my list of stock picks.