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Walter Energy and Vale Are Digging Out

NEW YORK ( TheStreet) -- I scan the markets every day searching for overbought and oversold stocks that are worth examining closer. In a market that is near all-time highs, finding beat-up stocks is surprisingly easy. The real trick is to separate dead-cat bounces from potential winners.

Dead cats can quickly smell up a portfolio, so before we make a move we want to have as much working for us as we can. Insider buying, improving earnings, technical indicators and other metrics can take the emotion out of investing and provide the courage to push the button while others are throwing in the white towel.

I like the following for a holding time of about six months and a profit target gain of about 30%. Never lose sight of the fact that there's a reason why investors walked away and be ready to do the same if they don't work out.

VALE Revenue Quarterly Chart VALE Revenue Quarterly data by YCharts

Vale S.A. (VALE - Get Report)

Background: Vale engages in the research, production, and marketing of iron ore and pellets, nickel, fertilizers, copper, coal, manganese, ferroalloys, cobalt, platinum group metals and precious metals in Brazil and internationally.

52-Week Range: $12.39 to $21.88

I'm not surprised Vale made the list after the equity meltdown in Brazil and recent fall in mining around the world. The good news is that we're working off a low base and the returning of sobriety to the over-hyped Brazilian markets. Gold has markedly moved off the June lows. As long as United States Oil and Gas (USO) refuses to fall, inflation is a real concern, and that includes iron ore.

An improving Asian economy, particularly China, should provide the catalyst for digging Vale out of the hole. As a result of lower commodity prices, Vale decreased the size of dividend payments. Vale distributes an annualized dividend of 76 cents, yielding over 4.5%. Vale is somewhat unique in that it pays dividends twice a year instead of the usual four. The next dividend payment is coming up on Oct. 31.

The short interest is slightly elevated at 3.1%, albeit, not yet enough to make me want to worry about it. As long as it stays under 4%, I won't give it much thought. Look for an entry price near $15.20 as a good buy.

VALE Payout Ratio TTM Chart VALE Payout Ratio TTM data by YCharts
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