How To Spot, Avoid or Trade A Collapsing Stock

My free yahoo forum has had a lot of postings this year on Vale SA Stock. It reminded me of two years ago when the forum was filled with postings about BlackBerry Stock. Vale SA stock trades on New York under the symbol VALE. Vale SA is a Brazil-based metals and mining company with 4 segments, Bulk Materials, Basic Metals, Fertilizers and Logistic services.

Vale’s book value is $12.29 and earnings are negative $1.08 per share marking a decline of over 219% from the prior year. Vale is continuing to pay a dividend of $1.23 which is 13.07% based on its current trading price of $9.41. How long that dividend will last is anyone’s guess but the dividend and the option premiums have been drawing investors for most of this year on my yahoo forum. Vale SA is losing market share for the second year in a row in an industry that in general is declining. This company has revenues of $41.6 billion.

Vale Stock In Decline

When a company’s stock is declining it almost always will exhibit a pattern of lower highs and lower lows. It is always a signal there is something wrong with the company itself. Throughout all of 2014 this pattern has been evident in Vale Stock. You can see the decline below which has wiped out 64% of the stock’s value since Jan 2013 and 75% since Jan 2011.

Investors Caught In The Decline

Every week I receive emails from investors who have sold puts and ended up caught in the continuing decline. Some have managed to earn small profits for a few months and then got caught in the next downturn which wiped out prior earnings. They then set up a new round of Put Selling in an attempt to recover their loss only to repeat the same pattern of making some profits for a few trades and then losing all or most of the profits when the stock then moves lower again.

Vale Stock in decline to Nov 21 2014

Deep In Trouble

Vale is exhibiting the typical signs of a stock in deep trouble which reflects on the company being in deep trouble. While earning $41.6 billion in revenue and continuing to watch more losses on the balance sheets, it is obvious that Vale SA perhaps needs new management and to rethink its operating methods and manners in which it conducts business. Vale needs to become profitable again to save its stock and shareholders.

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Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. Trade at your own risk. Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed and presented are financial or trading advice or recommendations. Everything presented and discussed are the author’s own trade ideas and opinions which the author may or may not enter into. The author assumes no liability for topics, ideas, errors, omissions, content and external links and trades done or not done. The author may or may not enter the trades mentioned. Some positions in mentioned stocks may already be held or are being adjusted.