Zacks Bull and Bear of the Day Highlights: Vale S.A., Morgan Stanley, Freeport McMoRan, Peabody Energy and Joy Global

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Jan 17, 2011, 09:30 ET

CHICAGO, Jan. 17, 2011 /PRNewswire/ -- Zacks Equity Research highlights: Vale S.A. (Nasdaq: VALE) as the Bull of the Day and Morgan Stanley (NYSE: MS) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Freeport McMoRan (NYSE: FCX), Peabody Energy (NYSE: BTU) and Joy Global (Nasdaq: JOYG).

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Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.

Here is a synopsis of all five stocks:

Bull of the Day:

We upgrade our rating on Vale S.A. (Nasdaq: VALE) from Neutral to Outperform based on the rising iron-ore demand in China, world's largest iron-ore importer, and the expectations of higher iron-ore price in fiscal 2011. A decrease in Indian exports also goes in favor of Vale.

We believe that the stock has a significant long-term upside potential due to the company's position as a low-cost metal producer and also due to the improvement in the economic conditions. Vale's huge capital budget of $24 billion in fiscal 2011 supports numerous strategic acquisitions, which are likely to be beneficial in the long run.

Further, Vale reported excellent results during the third quarter of fiscal 2010 with an EPADS of $1.13 compared with only $0.31 in the year-ago quarter. It also surpassed the Zacks Consensus Estimate of $1.03.

Bear of the Day:

Based on the headwinds in most of Morgan Stanley's (NYSE: MS) businesses and given concerns related to its financials being affected by the Dodd-Frank Act in the near term as well as the implementation of Basel III in the long term, we are downgrading our recommendation on the shares to Underperform.

Debt-related credit spreads had an adverse effect on third quarter revenues. Lower net interest income and weak performance of most of its business lines were also among the negatives.

We believe the restructuring initiatives taken by the company to reduce balance sheet risk will improve its valuation over time. Nevertheless, the company is facing major headwinds to stay competitive and regain its industry-leading position.

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Industrial Production Rises

Factory utilization rose to 73.2% in December up from 72.9% in November (revised up from 72.8%) and from 72.8% in October (revised from 72.6%). That is up from 69.1% a year ago, and the cycle (and record) low of 65.4% in June 2009. That is still well below the long-term average level of 79.2%, so as with total capacity, we still have a long way to go on the factory utilization level.

The increase in utilization over the last year, both total and factory has been aided by a decline in capacity, with the total falling 0.2% and factory capacity dropping 0.1%. If some factories are closed and dismantled, it is easier to run the remaining ones closer to full time.

Mines were working at 88.9% of capacity in December, up from 88.7% in November but down from 89.3% in October. A year ago they were only operating at 80.9% and the cycle low was 79.6%. We are actually now above the long-term average of 87.4% of capacity.

Since there is a lot of operating leverage in most mining companies, this probably means very good things for the profitability of mining firms with big U.S. operations like Freeport McMoRan (NYSE: FCX) and Peabody Energy (NYSE: BTU). Mine capacity increased 0.1% year over year. As depreciation is more than just an accounting exercise when it comes to mining equipment, the high operating rates are also good news for the equipment makers like Joy Global (Nasdaq: JOYG).

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

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